Haworth Inc. Business Information, Profile, and History

Company Perspectives:

Haworth Inc. is a leading designer and manufacturer of office furniture with a global reputation for innovative, high-quality products and services. International design magazine FX states, "Haworth seems to have a genuine intellectual lead among its influential peers. Such extreme thinking demonstrates a thoughtfulness and willingness to push boundaries."

History of Haworth Inc.

Haworth Inc. is the second largest manufacturer of office furniture in the United States. Its principal competitors are Steelcase, Inc., the industry leader, and Herman Miller, Inc., and all three are Michigan companies. Haworth makes a huge range of furniture, from low-end lines sold at mass merchandisers like Office Depot to award-winning showcase design selections. Some of its brand names are Haworth, United Chair, Anderson Hickey, and Globe. Brands stemming from its European operations include Castelli, Comforto, Ordo, and Seldex. The company originated prewired movable office panels and successfully sued its larger rival Steelcase for patent infringement involving this product. Haworth began growing through acquisitions in the late 1980s and now has a host of subsidiaries in North America and in overseas markets. The company has manufacturing and sales operations in more than 70 countries worldwide. In addition to its strong presence in Europe, Haworth operates a sales and service division in Hong Kong to serve the Pacific Rim countries and has an extensive sales network throughout South America and the Middle East. Haworth is privately held by members of the Haworth family.

From Hobby to Business: 1940s-70s

Haworth began as a hobby for its founder, Gerrard W. Haworth, a graduate of Western Michigan University and the University of Michigan, who began teaching industrial arts in a Holland, Michigan high school in 1938. Hoping eventually to help finance college educations for his children, Haworth sought to supplement his income by beginning a part-time woodworking business out of his garage. Over the next ten years, his craftsmanship was recognized, and the number of orders he received for wood products grew.

Hoping to turn his passion for woodworking into a full-time profession, Haworth approached a local bank for a loan in 1948. Having had no prior business experience, however, he was rejected as too great a risk. Undaunted, Haworth mortgaged his home and accepted a $10,000 loan from his father, and, once obtaining the money he needed to begin business, he quit his teaching position, purchased secondhand shop equipment, and founded Modern Products. During its first two years, the company employed six woodworkers at a small plant in Holland and received orders for a wide variety of products, but in 1951 Modern Products won a contract that would determine the course of its business.

That year Haworth was approached by an architect who had designed an office partition to be used at the new United Auto Workers (UAW) union headquarters in Detroit. Haworth accepted the job of producing the partitions, and he set about planning the prototype. Referred to as a "bank partition," the product measured 66 inches high, consisting of 43 inches of wood and 12 inches at the top made of glass. The prebuilt partitions were well received at the UAW headquarters, and, speculating that other companies might also be interested in them, Haworth decided to focus his business on their production.

Business boomed over the next ten years, growing 30 to 40 percent annually, sometimes more, and in 1959 Modern Products became a national manufacturing concern. In 1961 the company moved to larger facilities, and during this time, Haworth's teenage son Richard began working at Modern Products, sweeping floors and operating some of the machinery. In 1964, having graduated from Western Michigan University with a Bachelor's degree in business, Richard became an assistant sales manager at Modern Products, working at a plant in his hometown of Holland. Within two years he was promoted to vice-president for research and development, but soon was obliged to leave the company for service in the U.S. Army. When Richard returned to Modern Products in 1969, his father relied on him to help develop a new type of office furniture product.

During the 1960s, competitor Herman Miller, Inc. of Zeeland, Michigan had introduced the innovative Action Office System, consisting of movable panels, shelves, cabinets, and desktops that could be rearranged to create workstations and open spaces to accommodate a variety of floor plans. Richard countered with the development of a unique movable panel insulated with carpeting to reduce noise and help ensure privacy. Modern Products began manufacturing these new panels in 1971, and the following year the company's sales were estimated at $6 million.

Over the next few years Richard Haworth became increasingly interested in panel design. Christopher Palmeri, in an article in Forbes, stated that Richard's colleagues remembered him "anonymously visiting competitors" showrooms and taking their furniture apart' to learn more about panel construction. During this time he devised a method of installing electrical wiring inside panels that would exert a tremendous influence on the industry. Modern Products' prewired panels, introduced and patented by Richard Haworth in 1975, could be easily snapped together and eliminated the client's need to pay extra for electricians to wire office spaces. The new line of these panels, called Uni-Group, was a huge success, and that year sales increased sharply to around $10 million, while the number of people employed at Modern Products grew to 136.

Rapid Rise in the 1980s

Also that year the name of the company was changed to Haworth Inc., and a new corporate headquarters was established in Holland. In 1976 G.W. Haworth stepped aside, becoming chairperson and naming his son president. Richard Haworth oversaw years of phenomenal growth at Haworth Inc. Not only did the office systems and furniture industry as a whole become more profitable in the 1980s, but Haworth consistently grew at a rate more than two times the industry average. In 1980 Haworth set up a European division after reportedly spending nearly $30 million to acquire West German chair manufacturing company Comforto GmbH. By 1986 Haworth had become the country's third largest office furniture manufacturer; its sales exceeded $300 million, and its staff of 2,600 was producing office chairs, filing cabinets, and fabrics, in addition to the popular panels. Three years later, the company opened a showroom in London and estimated that nearly ten percent of its sales was generated in foreign countries.

During its expansion, Haworth became involved in a legal dispute with industry giant Steelcase, Inc. that would last more than 15 years. Steelcase had begun marketing a panel similar to Haworth's prewired panel in the late 1970s. Claiming that Steelcase had infringed on his patent, Richard Haworth sought compensation from the company in the early 1980s. Steelcase argued, however, that its prewired systems were developed by its own staff and brought into question Haworth's right to the patent. So in November 1985 Haworth filed a civil lawsuit against Steelcase. The case was tried in a Michigan court, and in May 1988 a U.S. District Court judge ruled in favor of Steelcase. In January 1989, however, the decision was overturned by the U.S. Court of Appeals, which found several errors in the Michigan court's interpretation of the case and ruled that Haworth's rights as patent holder had been infringed upon. The case was not definitively settled until 1997, when the U.S. District Court for western Michigan ordered Steelcase to pay Haworth damages of $211.5 million. This was deemed one of the largest patent litigation judgments in U.S. history. Richard Haworth filed a similar suit against Herman Miller, Inc. in 1992, declaring in Forbes that although litigation leads to bad will between the companies, "we believe we have to protect what we invest in."

The late 1980s was a difficult time for the office systems industry. Aggressive discounting and the increased sale of used office equipment led to a "shakeout" of the industry's smaller companies and to decreased earnings for Steelcase, Herman Miller, and Haworth. Nevertheless, Haworth continued to gain market share, and in 1990 it purchased the Mueller Furniture Company, a Holland-based manufacturer of wooden tables and chairs. In December of that year Industry Week magazine compared Haworth to an "overachieving younger sibling, who's content not just to catch up, but to overtake big brother's lead."

During this time, Haworth's unique corporate philosophy attracted attention in the business community. Referring to employees as "members," Haworth espoused a participative management style, in which all members were required to spend one hour per week brainstorming ways in which Haworth could better serve the customer. During busy periods, the company paid members overtime for this one-hour commitment. Characterizing its approach as "customer-driven," Haworth produced a creed for its members that, in the words of Richard Haworth, "put profit last on purpose because we believe profits are a result of doing the right thing, focusing on quality, our customers, and giving our employees freedom to do what's right."

In response to customer needs for a more open, interactive workspace than the paneled workstations provided, Haworth introduced new products in the 1990s. Conference tables were developed that could be easily rearranged to form circles, U-shapes, or individual tables, as were panels of lower heights made of transparent materials. Furthermore, Haworth made available adjustable-height work surfaces. The Trakker adjustable table, for example, contained a computer memory that could be programmed to adjust the table to as many as 19 different heights. The computer could be set to periodically remind users to adjust the table in order to lessen their chances of stress injuries.

Acquisitions in the 1990s

Haworth had begun a run of acquisitions with its purchase of Comforto in the 1980s. The 1990s saw a marked increase in Haworth's size, as it bought up office and business furniture makers across the world. It concentrated on low- to middle-priced office furniture manufacturers, buying up or investing in a dozen companies between the late 1980s and 1993. Some of the companies it bought included Mueller Furniture Company, Kinetics, and Lunstead, all acquired in 1990. In 1993 Haworth purchased Globe Business Furniture, a domestic manufacturer of seating, institutional furniture, and ready-to-assemble office furniture. Globe was headquartered in Hendersonville, Tennessee and had estimated sales of more than $100 million for 1992. It sold its products through catalogs, warehouse clubs, and office superstores, and so it gave Haworth entry into these mass market distribution channels. Haworth picked up GSP Manufacturing in 1994, a maker of upholstered wood office furniture located in Tijuana, Mexico. Then in 1995 Haworth purchased Office Group America, of Leeds, Alabama. Office Group had sales of $150 million for 1995 and consisted of two units, Anderson Hickey and United Chair. All of the added subsidiaries put Haworth's total sales up to $1.2 billion by 1995. That year it did better than its close rival Herman Miller, Inc., giving Haworth the number-two ranking in the office furniture industry.

By 1995, Haworth was deriving about 30 percent of its sales from overseas. The company hoped to push that figure to 50 percent over the next five years. Foreign acquisitions were key to Haworth's growth strategy. The company realized that many of its major customers operated globally. It had contracts with firms like Motorola and Sun Microsystems, and these companies were likely to want Haworth to work with them in overseas locations. Richard Haworth developed a lengthy process of getting to know possible acquisition targets. He explained his system in an article he authored for the January/February 1995 Mergers & Acquisitions, detailing how his firm worked for five or six years sometimes with companies it hoped to buy, moving cautiously toward formal acquisition talks. However, for Haworth, the long period of getting to know the target company paid off.

Haworth boasted rapidly accelerated revenues by 1996. Over the preceding five years, sales at Haworth almost doubled, while the overall business furniture market increased by only 30 percent. Haworth's operating margins were also better than its close competitors'--it had operating margins of ten percent, versus eight percent for Herman Miller and six percent for Steelcase. The slew of acquisitions had given Haworth a complete line of office furniture across all price ranges, but it had a good concentration of low- to medium-priced lines. The company worked hard to keep manufacturing prices down, to be able to continue to keep prices below its competitors. Although Haworth almost quadrupled in size over the early 1990s, the percentage it spent on sales, administrative, and other expenses went down significantly. The company also was known for lowering its prices in order to undercut competitors. A New York furniture distributor quoted in a May 1996 Forbes article described Haworth's policy thus: "If Miller and Knoll are offering 65% off on a project, Haworth says 71%." By 1996 Haworth boasted that it won 65 percent of all new contracts it bid on.

In the late 1990s and into the next decade, Haworth worked on developing innovative products. It established a research and development group in the late 1990s to work on ergonomically designed furniture and office space. Haworth not only looked to design more comfortable chairs and desks, but strived to design work spaces that helped workers concentrate and reduced stress. Haworth also invested in new computer software, using a system that enabled customers to view virtual workspaces on the screen so that changes could be previewed. The system also tallied estimated costs.

Haworth's acquisitions did not slacken as the company moved into the 21st century. In 2000 Haworth acquired a majority interest in a Canadian maker of laminate office furniture, Group Lacasse. Haworth also bought another Canadian company that year, Smed International. Smed, based in Calgary, with sales in Canadian dollars of $192 million, agreed to be bought by Haworth rather than accept another hostile offer. The Smed acquisition was expected to boost Haworth's sales so that it would surpass its rival Herman Miller for the number two spot in the office furniture industry.

Principal Subsidiaries: Comforto GmbH (Germany); Mueller Furniture Company; Lunstead, Inc.; Kinetics, Inc.; Ordo S.A. (France); Anderson Hickey Co.; Globe Business Furniture; First Source Furniture Group.

Principal Competitors: Steelcase, Inc.; Herman Miller, Inc.

Chronology

• Key Dates:

• 1948: Company is founded by Gerrard Haworth.
• 1976: Name is changed to Haworth Inc.; company introduces prewired office panels.
• 1986: Company becomes third largest in U.S. office furniture industry.
• 1997: Haworth wins more than $200 million in patent infringement case against Steelcase.