A Humanist Business Leader
This is the story of a Christian business
leader who proved by example that a highly successful business
could be built on the principles of his faith. Between 1923
and 1961 Dirk Jan (D. J.) De Pree fashioned the Herman Miller
Company into a highly profitable leader of the office furniture
industry. He did it with a strategy of design leadership
coupled with superior labor productivity. The key to that
productivity was the implementation of a Scanlon Plan in
1950. Underlying the adoption of that plan was DJ's belief
that the relationship between management and labor must
be covenantal rather than contractual. That philosophy was
continued by two of DJ's sons, Hugh and Max, after he gave
up active leadership of the firm in 1961. In the late 1980s
the company experienced explosive growth, and was ranked
by the nation's chief executives as one of the ten best
managed companies in America.
It is absolutely critical that voters, workers,
business leaders, intellectuals, and religious leaders be
familiar with the DJ De Pree story or similar examples of
humanitarianism in business. What is at stake is nothing
less than the survival of capitalism.
Capitalism is almost universally acknowledged to be the
best economic system for promoting economic development.
Even Karl Marx made that argument. Marx, of course, went
on to criticize capitalism for the inhumane way it allegedly
treated labor, and he predicted that once an economy had
industrialized, the working class would rise, seize power
and replace capitalism with a more humane system.
Few modern economists would agree with Marx. His analysis
was deeply flawed and history has proven his vision of the
steady "immiserization" of labor to be wrong. By 1990, the
communist nations which had been inspired by Marx were in
the process of importing capitalistic institutions in a
desperate effort to revitalize their sagging economies.
Yet there remains a widely held belief that capitalism is
inherently "inhumane" in an important sense. It is widely
believed that capitalism generates material progress at
the expense of individual growth and development. A great
deal of economic theory supports this view by assuming that
work is onerous and distasteful and that management has
no interest in the workers beyond their production. This
view that capitalism is an inherently selfish system is
shared by religious groups. They tend to prefer some form
of socialism which they believe is more likely to promote
the altruism and humanism which they profess. In this they
are joined by humanist intellectuals whose influence far
exceeds their numbers because they write the books and editorials
and produce the movies and television programs which the
average citizen reads and watches. Thus capitalism has come
to have a negative connotation to many Americans.
There are certainly countless examples which illustrate
this negative view. If they are the only examples the public
ever hears about, then capitalism is ultimately doomed.
But there are those counter examples. Herman Miller is a
case in point. In those counter examples lies the hope for
the survival of capitalism. That is the future historical
significance of the DJ De Pree story. A synopsis of that
Youth and Early Work Experience
Dirk Jan (D. J.) De Pree was born in Zeeland,
Michigan in 1891. His father was a tinsmith who was also
active in local politics. From the beginning religion was
a major influence in D. J.'s family. His grandparents were
Dutch Calvinists who had immigrated to Zeeland in the late
19th century. They sought a new home where they could not
only earn a living but also live the full Christian life.
D. J.'s parents were equally devout. They, in turn, raised
a son for whom regular Bible study became a central part
of his adult life. Persons of similar persuasion also settled
in Zeeland so that D. J.'s social environment reinforced
the teachings of his parents.
D. J. was baptized in the Reformed Church. As an adult he
engaged in daily Bible study and began to question some
of the doctrines of the Reformed Church. In the 1930s he
helped organize the Thursday evening meetings of a nondenominational
religious group in Zeeland. In the 1950s that group became
the new Baptist church and D. J. became a Baptist.
That streak of independence also showed up in politics.
As a youth, D. J. became a Democrat in a town that was solidly
Republican. (His father was also a Democrat). While D. J.
was still too young to vote he was chosen to ride with Michigan's
Democratic Governor Elect in a victory parade, "because
the town didn't have enough adult Democrats to fill the
car" [1, p. 112].
D. J. graduated from high school in 1909 and went to work
as a clerk for the Michigan Star Furniture Company in Zeeland.
The company had been formed four years earlier when a canning
company went out of business, leaving an empty building.
De Pree's job consisted of general office work, taking orders
from his boss and a secretary.
As a boy, D. J. had developed the reading habit and continued
it as a young adult. It was because of that habit that he
read an article on time management in Sunday School Times.
Adopting the ideas in the article, he was able to finish
his work at the company in half the normal time. He used
the free time to study accounting and thereby position himself
for advancement in the company. He also began reading the
work of Frederick Taylor and other efficiency experts [1,
In 1914, D. J. married Nellie Miller, daughter of a local
businessman. That marriage produced three sons, two of whom
would eventually join their father in the business. The
third became a college mathematics professor.
In 1923 D. J. decided to found his own business. With the
help of a loan from his father-in-law he bought the Michigan
Star Furniture Company. (The two purchased 51% of the stock.)
He renamed the company Herman Miller in honor of his father-in-law
The father-in-law was never active in the business. However,
D. J. credits Herman Miller with adopting a policy of quality
through the use of the best materials and best workers [1,
For the rest of the decade Herman Miller continued to manufacture
traditional furniture for homes. It struggled to earn a
respectable profit, and remained a small company. There
were no indications at that time that D. J. would become
a distinguished American business leader. In fact, his father-in-law
was convinced that D. J. was a poor manager with a very
limited future .
Challenge and Response: The Product
One cause of the company's lackluster performance
was the nature of the furniture industry. D. J. saw it as
beset by "four evils" [1, p. 22]:
1. A buyer's market
2. The four distinct seasonal markets
3. An "ear-to-the-ground attitude"
4. The sales force structure – sales were completely in
the hands of independent contractors who worked on a 6 to
7% commission basis.
The buyer's market depressed prices. The four distinct seasonal
markets made it necessary to change production runs every
three months. The "ear-to-the-ground attitude" meant that
there was little scope for creative design because all manufacturers
carefully watched what the others were doing and quickly
copied or "knocked off' any design ideas that looked profitable.
The sale through independent contractors made it difficult
for manufacturers to develop an effective, loyal sales force.
Herman Miller's rise to distinction began with the problems
created by the Great Depression which began in late 1929.
The Depression caused a sharp dorp in the demand for furniture.
Herman Miller's competitors reacted by cutting prices in
a suicidal attempt to take the limited available business
away from one another. D. J. knew that everyone would lose
in the developing price wars. In addition, and more fundamentally,
he knew that if he engaged in the wars he would have to
sacrifice quality in order to lower costs. To him quality
was a moral issue. To sacrifice quality would be to compromise
his principles. His challenge was to find a way to stay
in business without cutting prices. Time was short. In 1930
he estimated that the company would be bankrupt in a year
unless he found a way out [1, p.22].
The 1930s Strategic Gamble
D. J. had a general strategy. As he put it
years later, "I had come to feel that my lot in life was to
find a niche in which we could perform and no longer be a
fabricator for brokers and buyers. That was the only plan
I ever had" [1, p.22].
In the summer of 1930 a "providential event" introduced De
Pree to a method of implementing that plan. An amateur furniture
designer named Gilbert Rohde walked into Herman Miller's Grand
Rapids showroom. Rohde had ideas for a line of modern furniture.
He had contacted other Grand Rapids furniture firms and had
received no encouragement from them. Perhaps they were skeptical
because Rohde had no actual experience in designing furniture.
His background was that of an advertising and display illustrator
[1, p. 24].
But D. J. had been praying for a miracle. He was convinced
that Rohde was the answer to his prayers. And so he decided
to abandon himself to Rohde's ideas [1, p. 24].
Rohde's proposal was a daring strategy. He would develop and
sell new furniture designs with a contemporary look. He offered
to design the furniture for a fee of $1,000 per group. That
was far above the going rate of $300 per group in Grand Rapids
at the time. Furthermore, D. J. didn't have funds to pay the
fee. Instead the two agreed on a 3% royalty fee [1, pp. 25-26].
Rohde's first effort was introduced in 1930. It did not please
D. J.. Rohde was asked to modify the design but refused to
do so, saying that he would not compromise his work. Fortunately,
the conflict was resolved when an influential and large New
York furniture retailer ordered twelve sets of the furniture.
D. J. conceded that Rohde was right and made a long-term commitment
to let the designer follow his instincts . The decision
to trust the designer evolved into a Herman Miller philosophy
which helped the company to attract and retain top design
talent over the years that followed.
With his wisdom having been confirmed by the marketplace,
Rohde proceeded to convert D. J. to the philosophy which would
drive the company for the remainder of De Pree's career. Rohde
convinced De Pree that contemporary design had a moral dimension.
It was a way of improving the quality of modern living. This
view of the company's business purpose appealed to the devout
D. J.. As he put it years later,
"We came to believe that faddish styles
and early obsolescence are forms of design immorality, and
that good design improves quality and reduces cost because
it achieves long life which makes for repeatable manufacturing.
By good design I mean design that is simple and honest.
Materials should be used properly – would should be treated
as wood, plastic as plastic and metal as metal. Things should
look like what they are, with no fakery, no embellishment
other than the material itself properly finished" [8, p.
By 1934 sales of contemporary furniture
were substantial and D. J. made another major strategic
decision– the company would phase out the manufacture of
traditional furniture. During the rest of that decade Rohde
took the company into the production of seating furniture;
he introduced sectional or unit furniture; and he took Herman
Miller into the office furniture market with his Executive
Office Group in 1942.
Rohde was also responsible for the company's decision to
market through independent show rooms in major cities. The
decision to try this approach resulted from poor sales results
in the department stores. D. J. and Rohde were convinced
that the problem was a lack of knowledgeable salespersons.
The showroom solved that problem by allowing Herman Miller
to put trained, knowledgeable salespersons at the point
of contact with the architects and designers who were the
target customers .
Gilbert Rohde died in 1944. D. J. then launched
a two-year-search for a suitable successor. Again, a "providential
event" occurred. D. J. read an article in Architectural Forum
on the use of walls for storage. Intrigued, he asked his New
York sales representative, Jimmy Eppinger, to meet the author.
It turned out that the article had been co-authored by the
magazine's managing editors, Henry Wright and George Nelson.
Eppinger contacted Wright first, but Wright suggested he talk
to Nelson, instead. Eppinger discovered that Nelson knew nothing
about furniture design but did have a lot of thoughts consistent
with Herman Miller's philosophy. And so, Eppinger arranged
a meeting between D. J. and Nelson in Detroit [1, p. 30].
"They met in a local hotel restaurant and
spent an evening talking about religion. Each was horrified
by what the other believed about the Bible, although for
Nelson the shock was softened by a steady stream of martinis"
[1, p.30]. D. J. was intrigued and subsequently offered
Nelson the Herman Miler design job in spite of the fact
that Nelson had no experience with furniture. But Nelson
refused on the grounds of lack of experience. D. J. then
looked for alternatives but could find none. And so he returned
to Nelson with a renewed offer. Nelson's recollection of
that meeting was as follows [2, p. 42].
D. J. said, "We did see a lot of designers
who knew a lot about furniture…. We talked to them and looked
at their stuff. They were all just terrible. All their furniture
was awful…. So we're back because we figured that all these
experts being as bad as they are, we couldn't do worse than
get somebody who didn't know anything. So how about it?"
Nelson was hired in 1945 and immediately went to work on a
new line of furniture for all areas of the home. In a year
and half his team was able to turn out seventy new pieces.
Through 1988 that was the company record [2, p.43].
But Nelson wasn't content to simply direct the design work.
He took the initiative to develop advertising, sales literature
and catalogs [2, p.43]. He assumed the responsibility for
articulating the company philosophy and formulating a new
marketing strategy [1, p.30]. In 1947, he conducted a survey
of the furniture industry's practices and prospects. The results
were published in Fortune. They were also used to prepare
a set of recommendations to Herman Miller's top management
for the company's future.
Nelson's importance to the company was once summed up by Hugh
De Pree as follows [2, pp. 44-45]:
George Nelson's work gave us the foundation
for a highly developed, coordinated design program…. George
may have been the finest marketing man Herman Miller ever
had, because he sensed trends and knew how to respond with
solutions …. It was providential, fortuitous, plain lucky
and the result of hard work that this working friendship
between Herman Miller and George Nelson was formed, developed
and carried on. At that time he was so important to Herman
Miller that without him the company could well have ceased
to exist…. George was not only a designer at Herman Miller
but also a leader a consultant, a resource, a teacher. He
contributed so much….
And, of course, the key to Nelson's ability
to contribute was D. J. De Pree's amazing ability to allow
him to do so. That ability to trust key people had previously
shown up in D. J.'s relationship with Rohde. It would surface
in the future in the cases of another key designer, Bob
Propst and of D. J.'s sons, Hugh and Max.
Charles and Ray Eames
At the time Nelson introduced his first creations,
he took the unusual step of urging D. J. to engage the services
of a second designer, one who would be Nelson's equal in status
and pay. The new designer was Charles Eames. His work became
known to Nelson through an exhibit at the Museum of Modern
Art in New York. Nelson was so impressed that he lobbied D.
J. to acquire Eames' designs. D. J. was hesitant because of
his concern for Nelson. He met with Nelson and is reported
to have said :
We're just getting ready to introduce your
first products to the market. We're not a large company.
We'll never pay much in royalties. Do you really want to
share this small opportunity with another designer?
Nelson's legendary reply was something like
[3, p. 67]:
Charles Eames is an unusual talent. He is
very different from me. The company needs us both. I want
very much to have Charles Eames share in whatever potential
Nelson subsequently had second thoughts
because of the compensation issue but was able to overcome
them and become a supporter of Eames [2, p.44].
Nelson's insistence on sacrificing potential personal income
for a bigger goal became one of Herman Miller's "tribal
stories" in the years that followed. It was told repeatedly
to inform new employees and remind the old timers that Herman
Miller was a company where heroes and heroines put creativity
first, where people took the long view, and where the joy
of creating was as important as earning a living.
Eames quickly paid back the company's investment in him.
As predicted, his designs did well in the marketplace. And
in 1948 he made a significant contribution to production
methods by applying airplane manufacturing methods and materials
in the production of his molded shell chair design. By the
late 1950s Eames' designs were Herman Miller's major programs
[2, pp.46-47]. And in 1985 the World Design Congress named
Eames the most influential designer of the century .
The Office Furniture Emphasis
Nelson was particularly interested in the
design of office furniture. Office furniture also appealed
to D. J. because that particular market niche appeared less
prone to price-cutting and more amenable to the kind of
quality strategy that was evolving at Herman Miller. Consequently,
the company's expansion took place in the office arena.
During the 1950s Herman Miller introduced several successful
new office products. But the major developments awaited
the establishment of the Herman Miller Research Corporation
under Robert Propst.
One of Gilbert Rohde's lasting contributions
was his philosophy that Herman Miller should devote itself
to, "researching and answering basic human needs in the home
and business environments" [11, p.2]. D. J. embraced that
vision. During the 1950s he approved several initiatives to
expand and improve upon the company's research effort. In
1955 Herman Miller established a "tech center" to improve
the company's designs and production methods [11, p.4]. Then
another "providential event" occurred. In 1958 D. J. was visiting
his third son, John, in Colorado and heard about a Denver
inventor/designer named Robert Propst. De Pree sought out
Propst. He was impressed and encouraged Hugh De Pree to follow
up. Thus began a two-year dialogue between Hugh and Propst
that resulted in the establishment of the Herman Miller Research
Corporation in 1960.
The research corporation was directed by inventor Propst.
Its purpose was to research the furniture needs of the modern
office and to enable Propst to explore other ideas which might
be of interest to the company. Its operating premise was that
office productivity could be improved by the proper integration
of people, machines and work processes. Its first decade was
spent studying what office workers actually did and how the
office environment could be changed to facilitate the work.
As told in a recent company history [11, p.7]:
Robert Propst had to put aside all the assumptions
that had been made about the office during its brief history.
Instead he asked questions: about, for example, the exponential
rate of change in the office environment. Propst and his
research team asked how an office could aid information
workers in a world that offered too much information to
handle. They studied the fact that more and more professions
required offices and that each discipline required a different
environment to work effectively…. They recognized that display
triggered recall and asked themselves how an office with
too much information pouring into it could keep information
out in the open. They examined the way work travels in the
office, the way conversations are held, and the conflict
between privacy and the need to be involved.
The result of that research was the introduction
of the Action Office system in 1968. It was not immediately
successful, but it continued to evolve after 1968. One of
the later versions of the Action Office served as the basis
for the company's sudden, explosive growth in sales in 1977.
And in 1985 the World Design Congress named the action Office
the most significant industrial design since 1960 .
The introduction and ultimate success of the Action Office
took place under the leadership of Hugh De Pree. By that
time D. J.'s role was strictly symbolic. But the groundwork
for the success had been laid by D. J.'s decision to seek
Challenge and Response: The People Story
Between 1930 and 1950 Herman Miller's distinction
was achieved in the area of business strategy and its implementation.
But throughout that period D. J. De Pree was bothered by
two concerns regarding the work force. One concerned quality
and productivity and was to be resolved in 1950 by the adoption
of the Scanlon idea. The other concerned the quality of
work life and would be resolved by the creation of an amazingly
humane corporate culture.
The Scanlon Plan and Participative Management
The Scanlon Plan came to Herman Miller as
a result of another "providential event". Here is how Ralph
Caplan summarized the story [1, p. 115].
In 1950, D. J. and Hugh De Pree went to
a meeting of the Grand Rapids Furniture Manufacturers Association
to hear a Michigan State University professor named Carl
Frost speak on cost accounting. Frost, however, didn't talk
about accounting; he talked about something called the Scanlon
Plan, and during the drive back to Zeeland, the De Prees
decided to look into the matter…. Frost agreed to set up
a Scanlon Plan at Herman Miller, with the stipulation that
the De Prees themselves participate and share in the bonuses.
Herman Miller's Scanlon Plan was installed
in May 1950. At that time the company employed 120 people,
90% of whom were production workers. The new plan applied
strictly to the production workers [18, p. 50]. The plan
attempted to boost production worker productivity by getting
them to participate in decision-making and providing rewards
(in the form of a bonus) for projects and practices which
they initiated and which boosted productivity. The Scanlon
idea and its application at Herman Miller are discussed
in greater detail in the Appendix.
The Scanlon Plan, or as many put it the Scanlon Idea, became
and continues to be a cornerstone of Herman Miller's success.
On two occasions, as chronicled in the appendix, there were
major changes in the plan, but the basic philosophy remained
the same. The changes were forced on the company by developments
in the business environment. The company was able to successfully
adapt to the changes because it correctly viewed the Scanlon
Plan not as a rigid recipe but rather as an idea capable
of being implemented in a variety of forms depending upon
Beyond the Scanlon Plan – The Covenantal
The process of installing the Scanlon Plan
energized D. J. De Pree's long dormant vision of creating
a fulfilling workplace. He began to devote time to thinking
about other ways of raising the level of interpersonal relationships
at the company. He shared his thoughts with his two sons,
both of whom were managers at the company. Together the three
worked out the elements of what they later referred to as
the "covenantal relationship" at Herman Miller. Many years
later Max De Pree explained it this way [3, pp. 50-51]:
Broadly speaking, there are two types of
relationships in industry…. The contractual relationship
covers the quid pro quo of working together…. Covenantal
relationships, on the other hand, induce freedom, not paralysis.
A covenantal relationship rests on shared commitment to
ideas, to issues, to values, to goals, and to management
processes. Words such as love, warmth, personal chemistry
are important. Covenantal relationships are open to influence.
They fill deep needs and they enable work to have meaning
and to be fulfilling…. Covenantal relationships enable corporations
to be hospitable to the unusual person and unusual ideas.
Covenantal relationships tolerate risk and forgive errors.
The covenantal concept was introduced at Herman
Miller by D. J. and elaborated by successor management. The
basic idea originated in a "providential event" in 1927. It
began with the death of the firm's millwright, Herman Rummelt.
D. J. went to Rummelt's home to pay his respects to the widow.
She welcomed him and proceeded to talk about her husband while
showing D. J. some of the man's effects. And suddenly, D.
J. had a revelation. Here is how he remembered it [13, p.3]:
(T)here were several things about Herman
Rummelt that I thought were unusual. One was the handicrafts
that he made – primarily for his wife – and that was the
first thing she showed me…. Then the next thing she showed
me was this sheaf of papers with his poetry in his own handwriting.
Then she began to tell me about one of the men who was in
his department who had been a machine gunner in World War
I and had killed a lot of Germans, and felt he was a murderer
and he was going to Hell because of that. Well, Herman Rummelt
took time to spend with this man; he was the night watchman
and between rounds would show him from the Bible that there
was reconciliation and forgiveness.
So I saw this man with an interest in the souls of the people.
He was a craftsman. He wrote poetry. Here were three sides
of a person besides his job of keeping that line shaft in
That was the morning he died. Later, after the funeral,
as I walked the block and a half from the church to my house,
I felt that God was dealing with me in this matter of my
attitude toward the workers in the plant, and I began to
realize that we're all alike. Because here was a man that
did these things that I couldn't do, or I wasn't doing.
By the time I got home, I had decided that we were all extraordinary,
and this changed my whole attitude toward what we call 'labor'….
These people were my peers.
D. J. implemented that new vision in little
ways over the next several decades. Then the discovery of
the Scanlon Plan allowed the company to make substantial
progress in establishing the covenantal relationship after
1950. Subsequently, D. J., Hugh and Max established a company
culture with the impressive set of covenantal rights listed
in Table 1.
In 1960, D. J. contracted an illness which
cut short his career. He stepped down as CEO in 1961. When
he recovered, there was no longer room for him as CEO. And
so he became active in the Gideon Society and served as
their president. The new management team consisted of sons
Hugh and Max. D. J. continued to provide input and inspiration
as chairman emeritus but the sons ran the company. Under
Hugh and Max the company grew and changed but the Scanlon
Plan and the covenantal relationship remained in place in
spite of several serious challenges.
The challenges led to two changes in the Scanlon Plan as
explained in the Appendix. Prior to those changes the De
Prees had introduced an employee stock ownership plan in
1970. It provided incentives for employees to buy stock
and included a bold provision allowing any employee to sell
the stock he or she owned or a portion of it at any time.
Max De Pree once observed that without that right, the employee
doesn't have true ownership .
An even more impressive commitment to the employees was
made in the 1980s when the company responded to the general
threat of a hostile takeover. Most companies of that decade
protected their top management employees with so-called
"golden parachutes". At those companies other employees
were left to fend for themselves. In contrast, Herman Miller
adopted a "silver parachute" policy by means of which all
employees were afforded financial protection in case of
a hostile takeover.
Employee Rights at Herman Miller
1. To be needed
2. To be involved
3. To be cared about as an individual
4. To receive fair wages and benefits
5. To have an opportunity to do one's best
6. To have the opportunity to understand
7. To have a piece of the action in the form of productivity
gains, profit sharing, ownership appreciation and seniority
8. To have the space to realize one's potential
9. To have the opportunity to serve
10. To have the gift of challenge
11. To have the gift of meaning.
Source: Max De Pree, Leadership is an Art
In the 1980s Herman Miller finally gained
the nationwide recognition for management excellence that
it deserved. The record-breaking book, In Search of Excellence
, cited the company as an example for others to follow
in 1982. The book The 100 Best Companies To Work for In America
 included Herman Miller on its list. The book The Best
Companies For Women  picked the company as a leader in
that category. Surveys of corporate leaders undertaken by
Fortune magazine began to pick up Herman Miller as one of
America's most admired corporations (in 1989 it ranked 9th
In 1989 Max De Pree, by then retired from active management,
published his widely acclaimed summary of Herman Miller thinking
. In the preface of the book, nationally recognized management
professor James O'Toole answered his own rhetorical question,
"Why study Herman Miller?" with these reasons:
1. Its profitability -- $100 invested in the company's stock
in 1975 would have been worth $4,854.60 in 1986 (an annual
compounded growth rate of 41%).
2. Its heavy spending – it outspends its industry rivals on
research two to one and that spending development has made
it the leader in terms of introducing significant new products.
3. Its high labor productivity.
4. Its success in getting employees to act as if they owned
5. Its integrity.
O'Toole refers to the company as it was in the 1980s. As we
have seen the company at that time was the result of successful
responses to a series of challenges over a number of years.
Hugh De Pree once summarized that history as follows [2, p.
There is a pattern in the affairs of a company.
The principles and beliefs, encounters and events, people
and performance – all continually design and redesign the
business. At Herman Miller part of this pattern is the series
of crises and fortuitous encounters that have played a major
role in the design of this company…. These crises were,
first the definition of the problems in the furniture industry;
second, the sudden death of Gilbert Rohde; third, the vision
that each person is extraordinary and can contribute to
the business; fourth, the change from representation in
the market to an integrated sales and marketing program;
and fifth, the rapid movement from residential furniture
to systems and furniture for work in the office, factory
and health care facilities.
D. J. De Pree's years of leadership covered the first three
crises and their resolution. Hugh and Max De Pree were the
executives who handled the last two. But in all five cases
the success in dealing with crisis must be credited to the
corporate culture which D. J. fostered.
Perhaps author Ralph Caplan summed up D. J. De Pree's career
best when he said, "Some corporation heads have been so
dominant as to leave little distinction between the man
and the firm, but De Pree was not one of them…. (W)hatever
uniqueness there is in the Herman Miller Corporation stems
directly from the unique combination of events and people
whose influence he was open to…. The operative word is OPEN,
for De Pree was as much influenced as influence. His control
of the company did not lie merely in imposing his will on
subordinates…. Rather it lay in his performance as selective
conduit for the ideas of others. As it happened, these others
were designers, and that made all the difference – it led
to Herman Miller's hegemony in the field of design" [1,
Or perhaps the last word should be that of Max De Pree when
he observed, "There are two ways of competing in this business
– you can nickel and dime the competition to death, or you
can take giant steps that distinguish you from them. But
the only way to take giant steps is to have giants. D. J.'s
principal strength was the ability to abandon himself to
the strength of unusual people. Of course, we all know that
one of the really important business skills is the ability
to delegate, but D. J. went much further. Being abandoned
to someone else's strength is a giant step that goes beyond
delegation – that is when you get super performance from
people" [1, p. 18].
This appendix provides a more detailed summary
of the Scanlon Plan and its use at Herman Miller.
The Scanlon Plan
Named after Joseph N. Scanlon (an accountant,
steelworker and steel union local president), the plan is
based on the philosophy that if a firm fosters and uses
suggestions from its employees and rewards them for those
efforts, the company's profitability should be enhanced
and the employees should benefit through increased pay.
There are four basic elements of a Scanlon Plan:
1. The ratio;
2. the employee bonus;
3. the production committee; and
4. the screening committee.
The ratio is the standard used for evaluating the performance
of the firm. In its simplest form, the ratio compares the
total (all wages, salaries and benefits) cost of employee
compensation to the total market (sales) value of the firm's
production. The ratio is:
Total employee cost
Total value of production
For instance, the ratio might be .50/1.00, which means that
there is a $ .50 labor cost for $1.00 of production value.
Once the ratio is set, the employee's monthly bonus is based
on a reduction in costs below the present ratio. For example,
a company might be using a monthly bonus procedure that
distributes the first 25 percent to a reserve account to
reimburse the firm if the actual ratio rises above the present
ratio in future months. Seventy-give percent of the remaining
funds (56.25% of the total bonus) is paid to all employees
on a monthly basis and 25% (18.75% of the total bonus) goes
to the company as its share of the bonus pool. The monthly
bonus might be distributed as illustrated in Table 2.
The purpose of the bonus is to encourage employee suggestions
for improvements in the production process. The size of
the bonus depends upon savings in labor costs below the
present ratio. To facilitate employee suggestions and teamwork
and develop cost saving ideas, a production committee is
established in each department or other appropriate unit
of the company. The committee is composed of one management
representative, normally the department/unit supervisor
and one or more representatives elected by the nonmanagerial
employees in the department/unit.
Each production committee typically has two major responsibilities.
First the committee encourages employee suggestions to increase
productivity, reduce cost, improve product quality and enhance
the functioning of the entire organization. Second, the
committee is charged with the responsibility of following
through on employee suggestions by taking appropriate action
on the ideas.
Under the Scanlon approach, employees do not receive any
individual bonuses for their suggestions. Ideas that generate
bonuses are shared by everyone in the organization. The
purpose of this form of incentive is to encourage teamwork
and collegiality among all employees. Explaining this approach
to incentive pay Carl Frost wrote, "the central idea is
that the person doing the job will have good ideas with
people who do the same or similar work, and will encourage
other people to make suggestions by sharing ideas with them"
[4, p. 7].
Suggestions coming to the production committee that require
either a large financial investment to implement or that
cut across department lines and require interdepartmental
action to implement are normally referred to a second committee
called the Screening Committee. The Screening Committee
consists of the top members of management and an equal or
greater number of nonmanagerial employees that are elected
to the committee. In addition to reviewing suggestions referred
to them by the production committee, this committee reviews
the financial data relating to the monthly bonus, announces
the bonus (if earned for the month) and provides the supporting
information, identifies company problems and encourages
employee suggestions, and discusses external trends and
problems that can impact the firm.
The production committee will typically meet twice a month,
while the screening committee normally meets on a monthly
basis. The success of a Scanlon Plan will hinge to a large
extent on these two groups.
Herman Miller and the Scanlon Idea
In 1950, Herman Miller's sales volume was
less than $2 million a year and it employed about 120 workers.
Approximately 90% of the employees were in direct production
where they engaged in piecework and were paid on a piece rate
basis . Some of these rates were set too low while others
were too high. Describing this situation, Jay DeHaan (a long-time
employee) remembers: We had minutes for every operation that
we did. The more chains you did, the more minutes you got….
So your pay was based on speed, what you could do.
Well the company always had problems with these rates, these
piece rates. Some were good, some were bad. If you'd get good
rates you could really make good time, and of course everyone
would want to get the 'good' chains…. And then there were
rates that you had a terrible time making. There was a lot
of inequality. Of course if a person had an idea of how to
do it better and faster, he didn't share that because it benefited
him … to be faster than everyone else [13, p. 4].
In an attempt to be "better" by making the product as well
as they designed it, Herman Miller installed its version of
the Scanlon idea in June 1950. This plan had four primary
principles that applied to all employees:
1. Identity – everyone understanding the
business – its history, its values, its gals and objectives,
and the critical issues it faces – and how he or she can
responsibly take part. Essentially, identity is a matter
of literacy, of being well-informed in order to be effectively
involved. It is one's feeling a part of the business because
one has been empowered to be a part of it. It is merging
personal goals with organizational goals, the organization
becoming the vehicle for achieving those goals and gaining
the rewards that ensue.
2. Participation – everyone working together responsibly
to accomplish shared business goals and objectives. Essentially,
participation is a matter of the opportunity for ownership,
of feeling responsible to join with others as a positive
influence in order to get the necessary work done. It is
responding responsibly because one knows her or his stake
in the business.
3. Equity – everyone receiving a fair return for the investment
of his or her time and talents in helping meet the organization's
goals and objectives. Essentially, equity is a matter of
accountability, of sharing in the results of performance,
of willingly being responsible for one's actions an accepting
the consequences for them. It is getting a reward because
one has risked involvement in the business. At Herman Miller,
equity is not limited to employees but embraces other stockholders,
customers, dealers and suppliers as well – all of whom invest
to some degree or another in the company and deserve an
4. Competence – everyone being capable in his or her area
of responsibility. Essentially, competence is a matter of
commitments, of being motivated to cooperate with others
to contribute to the limit of one's potential to effect
positively the welfare of the business. It is doing well
what needs to be done because one knows that that is essential
both to his or her welfare and tot he welfare of the business
The basic elements of Herman Miller's version of the Scanlon
Plan were: a participative structure, a bonus system to
replace piece rates and a communication system. The participative
structure included a series of production committees to
review and act upon employee suggestions and a screening
committee to review, analyze evaluate and make recommendations
concerning both employee suggestions submitted to them and
the total operation of the company.,
The bonus system was based on the productivity of labor.
The entire difference between labor earned (direct and indirect
labor allowances on each product produced) and actual labor
costs (sum of wages, salaries and benefits) was paid as
a bonus to all participating non-field sales employees in
direct proportion to their base pay.
The actual bonus system used differed markedly from our
earlier example. In our example, a portion of the bonus
pool was immediately set aside as a reserve and the company
shared with the employees in the remainder of the pool.
The Herman Miller system allocated the entire amount to
The communication system involved a combination of group
monthly meetings and printed information. Early in the month
a day (called the Scanlon Day) was designated to conduct
a series of meetings to review the company's previous month's
performance. This was followed the next day by the distribution
of the actual bonus checks and documentation explaining
how the bonus was calculated. Between the monthly meetings,
written information was distributed to keep employees abreast
of their performance.
For over 25 years, the original Scanlon Plan worked extremely
well, and the company experienced steady growth. Sales were
approaching $50 million by the mid-70s, the work force had
grown to over 550 employees and bonuses were paid on a regular
basis . The best bonus year was 1974, when the bonus
averaged 22.83% [18, p. 51].
Then a major change occurred in the environment. From 1976
to 1979, the company experienced very rapid growth. Sales
increased from $50 million to almost $175 million and the
total work force grew to over 2,500 people . This spurt
in growth had, to a large measure, been the result of employee
cost-savings suggestions that allowed the company to reduce
prices by 10% on its Action Office Systems products. This
price cut came at a time when other major competitors were
raising prices and resulted in a major increase in demand
for Herman Miller's products.
Top management recognized that the company
had growth faster than their ability to manage and control
it. In addition, almost 50% of all employees were employed
in areas other than direct production [18, p. 52]. This
segment of the work force had very little input into the
suggestion system, even though they shared with the other
employees in the monthly bonuses. In general, many employees
found the bonus system calculation confusing and did not
have a great deal of faith in the system. Expressing the
general feeling of the employees concerning the bonus system,
Deb Exo (Tackboard Machinest Coordinator) remarked, "I can't
see where I'm making a difference. Especially if I've worked
exceptionally hard or I've really put out; or I've done
the best I could with the things I could control, and I
still receive a poor bonus – why [13, p. 15]?" Recognizing
their problems, top management formed an ad hoc committee
of 68 people in 1978 . These employees represented a
wide spectrum of the company and were charged with the responsibility
of assessing the Scanlon Plan and recommending changes that
would make it relevant for both the present and the future.
In January 1979, the committee's recommendations were presented
to the employees for their consideration. A company-wide
vote was taken, and over 95% of all employees approved the
recommended changes in the Scanlon Plan [18, p. 54].
Scanlon '79, as it is called by the employees, was composed
of a new process of participation and communication, and
a new bonus formula. To facilitate cooperation and communication,
the production committees and the screening committee were
replaced by a work team, a caucus and a council. These three
groups were set-up throughout the entire company.
The work team meets regularly and consists of a manager's
supervisor and the immediate employees in the unit. The
work team deals with employee suggestions/problems, reviews
the unit's plans and goals and evaluates the unit's performance.
The caucus is actually a peer group made-up of employees
at the same level within the organization, or with similar
jobs in the same department/area. If suggestions or problems
submitted to the work team are not resolved to an employee's
satisfaction, they can be resubmitted to the caucus. In
addition, the caucus acts as an employee support group and
elects representatives to the area council.
Each department/division throughout the company has a council.
The council's primary purpose is to discuss and review employee
suggestions dealing with topics such as the operation of
the Scanlon plan, customer service, productivity, and employee
safety and work methods. The council is headed by a director
or vice president and includes that person's work team plus
elected employee representatives.
In addition to creating the work team, caucus and council
to improve on the bonus system through a more comprehensive
bonus formula. Under this new plan both cost savings and
performance were brought into consideration. Performance
is measured against the annual business plan and includes
customer service and the effective use of financial capital,
materials and human resources. Targets are set for each
of these four areas and when they are exceeded the employee
bonus is increased. Cost savings is also measured and calculated
based on a yearly goal. For a more detailed and comprehensive
discussion of both the original Scanlon Plan and Scanlon
'79, see "Labor-Management Cooperation – The Scanlon Plan
at Work," by Judith Ramquist.
Scanlon in the 1980s
Rapidly changing market conditions during
the early and mid 1980s necessitated another major review
of the relevancy of the Scanlon Plan. Once again, the company's
employees were asked to conduct a thorough review of the
plan and to advance recommendations for renewing the process.
In 1988, a modified process was implemented. It included
changes in both the suggestion system and the calculation
of the bonus.
Under the revised suggestions process, work team leaders
receive employee suggestions. If the suggestion can be evaluated
and implemented within the department/unit, then no additional
steps are needed except for reporting the cost-saving/cost-avoidance
results to the newly created Suggestion System Office. If
the suggestion involves another department/unit then it
is forwarded to the Suggestion System Office.
The newly established Suggestion System Office is headed
by a manager whose role is to organize and direct the suggestion
process. In addition, the manager chairs a newly formed
Review Board composed of directors from different areas
of the company.
The Review Board, meeting weekly, reviews and assigns suggestions
submitted from the Suggestion System Offices and follows
through on them to make sure that prompt action is taken.
Any employee not satisfied with the decision made on his/her
suggestion can appeal that decision through the Review Board.
The purpose of both the Suggestion System Office and the
Review Board is to increase the efficiency of the suggestion
process. It was felt that the new suggestion process would
present a more responsive mechanism for revising and quickly
acting upon employee suggestions.
The bonus system was also revised in 1988. The bonus is
now calculated quarterly by an Equity Committee, and is
based on both profitability and quality. Two-thirds of the
bonus is paid from increased profitability as measured by
growth (average increases in net sales and operating income
over the same quarter of the previous year), asset use (improvements
over $2 of sales for every $1 of assets annually or fifty
cents for every dollar of assets quarterly) and cost savings
(20 percent of net savings from implementing suggestions,
plus an additional 20 percent on all cost savings over a
predetermined goal). One-third of the bonus is based on
improvements over the previous year in product quality and
the quality of service. Improvements in quality are measured
by responses from both customer and dealer surveys. The
total of the five measurements divided by the participating
payroll cost equals the bonus figure for the quarter [13,
*By Dr. Richard E. Hattwick, Dr. Robert L. Olcese and Dr.
Michael T. Pledge
*Copyright 1990. The American National Business Hall of Fame. All rights reserved. No portion of ANBHF may be duplicated, redistributed or manipulated without the expressed permission of the ANBHF.
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