Steelcase Focused In Right Direction CEO Says

June 5, 2002
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GRAND RAPIDS — Staying the course with a business plan that seeks to blend office furnishings, technology and architecture is the key to Steelcase Inc’s. future growth, even as the company copes with short-term economic pains, executives say.

Building a company that offers customers much more than new furnishings for their offices is the premise behind the strategy, which Chief Executive Officer James Hackett believes will begin paying off in the next few years as white-collar employment begins to significantly increase.

“We are in a time of rapid change,” Hackett told shareholders attending Steelcase’s 2001 annual meeting held June 25. “This is a company that is focused in the right direction.”

In outlining the company’s future, executives detailed Steelcase’s business strategy to develop and produce products for the modern high-tech office that help people work more effectively and are integrated into the office architecture.

A key focus of the strategy is to grow the company faster than competitors “by redefining our industry” through the development of interior office architecture products, such as full-height walls and raised flooring and lighting, and technology-based products, Senior Vice President and Chief Financial Office James Keane said.

“We’ve moving from furniture to architecture, furniture and technology,” Keane said.

Other aspects of the strategy include expanding Steelcase’s customer base with product lines designed to serve small, start-up companies that are growing rapidly, improving operating margins through the implementation of lean manufacturing over the next 18 months and the recent “right-sizing” the company to the current business conditions through workforce reductions, Keane said.

Steelcase’s long-term goal is to grow revenues by 8 percent to 10 percent a year and increase profitability to 12 percent to 15 percent increases in earnings per share, Keane said.

To reach that goal, Steelcase hopes to lure new customers through the development of new products. Hackett’s goal by 2005 is to have 40 percent of Steelcase’s total sales come from new products, up from 12 percent today.

Growing that percentage while improving profitability will require Steelcase to continue to streamline its processes so new products — which tend to have lower profit margins in their early years — contribute immediately to the bottom line.

“We’re working very hard in terms of ensuring that new products are profitable from the get-go,” Hackett said.

The annual shareholders meeting came amid the backdrop of an industry downturn that has produced what Hackett termed “dismal” financial results.

In the first quarter of its 2002 fiscal year, Steelcase’s net income fell 62 percent from the same period the previous year, from $62.6 million, or 41 cents per share, to $23.9 million. Sales for the quarter were off 9 percent, falling from $953.7 million to $868.3 million.

In response to the downturn that beset the industry late last year and the resulting short-term economic pressures, Steelcase has cut hundreds of production and salaried positions — a move that Hackett stressed was not taken lightly.

“Let me be clear, this is not a good idea at Steelcase,” Hackett said. “We have a social conscience. We don’t want people to lose their jobs, but there’s a balance between economics and the business being healthy, and people keeping their jobs.”

Despite the short-term pain of the economic downturn, Steelcase will rebound as a better-performing company when the economy improves, Hackett said.

“Adversity has a way of helping you get better,” he said.

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