Say "innovation" and "office furniture," and Herman Miller's Aeron chair comes immediately to mind. You might also think of the Steelcase (SCS) Leap or Humanscale's Freedom Chair -- other high-end, superengineered task chairs on the market. But chances are you wouldn't think about Turnstone, the Grand Rapids (Mich.)-based company that makes furniture for the small-biz market.
Turnstone has won dozens of design honors, including five Gold and Silver awards at Neocon, the office-furniture event of the year. And while the company's innovations might not have cracked the Museum of Modern Art's design collection, they're making a big impact on the bottom line.
ARTFUL STREAMLINING. A subsidiary of Steelcase, Turnstone was created to pursue younger businesses with budgets too small to have a dedicated facilities manager. This represented a market Steelcase -- a full-service shop that aims to solve the furniture or work-space needs of large companies -- wasn't hitting.
John Malnor, Turnstone's general manager, says his company is to Steelcase what the Mini Cooper is to BMW -- a subbrand that offers the same quality at lower price points by streamlining product lines without sacrificing design.
Turnstone is something of a case study in process innovation. The 30-person company has managed to leverage its connection to a large, established one by piggybacking on its technology and distribution channels, while also creating new approaches to product development and marketing.
In the past four years, Turnstone has introduced more than 40 new products. Its innovative approach has earned it an EVA-to-capital ratio of 10 to 1 (with "EVA" standing for "economic value added"). Malnor recently sat down with BusinessWeek Online Innovation editor Jessie Scanlon to talk about how his team does it. Following are edited excerpts of their conversation:
What did the midmarket furniture landscape look like when Steelcase launched Turnstone?
The longest-term player in that market is Hon. Like Ikea, Hon brought high-performance operations to a low-priced area. But Hon has focused more on efficiency and cost. We've focused on design. It's a very fractured market. Going back 10 years, a lot of companies would buy furniture through stationery or office-supply stores.
Are companies that would buy furniture at an office-supply store really going to care about design?
Many companies start with what they can cobble together. That point comes up again and again with customer interviews. They just want to get the biz up and running, and they don't care that much about design.
But as they grow, they hit trigger points. They reach positive cash-flow status, and they have the extra cash. Or make their first move to a long-term leased space. Then they start to work with contract [nonresidential] furniture or bring in interior designers for the first time. Eventually, companies move away from treating space as cost only -- what it will cost to get my cubicles built -- and we see them migrating toward viewing space as a tool. We want to hold onto that relationship all the way through.
When they grow to become the national or multinational, maybe then Steelcase takes over.
Turnstone has been able to leverage a lot of Steelcase knowledge and systems. In what ways has your company had to strike out on its own?
Our target is a dealer-led sale. These small companies will look around and think, We need some furniture. They'll ask friends or other people and find a dealer and ask it to come show them what their options are.
Turnstone sells through the Steelcase dealer network, but Turnstone works with the network differently from the way its parent does. There are a lot of small lower-priced manufacturers out there. Some of our dealers might have access to 30 of our competitors. So we wanted to find a way to make it personal and also let people know that we love what we do. Enthusiasm is infectious.
So a few years ago, we bought a '77 Airstream RV and outfitted it as an office -- with a printer and flat screens and lots of our furniture. Then we traveled around the country, visiting dealers, having lunches and breakfasts. We paid for the whole thing with a sale we made on the second day on the road. A customer was at the dealership and switched an order to Turnstone on the spot. We traveled the country nonstop for a year.
Was it hard to get authorization to buy the Airstream?
No. It wasn't a big risk. It was more the time commitment of my team to be out there and keep this thing moving. But we started small. We planned to do 25 events and see if it got a good response. When it did, we continued to resource it.
This year we purchased a brand-new bus that was a pretty large investment, but we were confident that it would pay off. We have a core belief whether it's a product or a service or a merchandising program, we should try to start small, look for unexpected successes, and then pour resources into those.
What's an example of that on the product side?
We launched a small line of laminate desks called Payback, and saw our sales grow about 100% in a few months. So we introduced the laminate to other lines, and introduced new drawers, shapes, and configurations for Payback -- and the next year sales doubled again. Today the line has 1,000 different style numbers, and it's the broadest desk line in our company.
How do you manage the product innovation?
Some new products are based on our formal research -- we visit a lot of small businesses and observe their needs. Or sometimes it's simpler -- we have people in the market every week talking to dealers and customers. We keep track of that feedback on a master project list that includes active projects, past projects -- so that we can track how well they're doing compared to what we expected -- and also a wish list.
How do product ideas get moved into production?
Design spends a lot of time conceptualizing ideas on the wish list and doing prototypes. Every quarter we go through the master list as a team and discuss how much we're hearing about ideas on the wish list, which ones are top priority, and which ones we have the capacity to move forward at that point.
We had a simple project to develop an ottoman, for example. It was No. 6 on our list. But it was small and low-capital and we activated it, because we couldn't handle another bigger project at the time. But the biggest factor is often, Do we have a champion for it? If someone is just passionate about it, we'll often go forward. It gives such a greater likelihood that the project is going to be a success, because someone is watching it every moment.
What counts as "low-capital" at Turnstone?
We're focused on spending the smallest amount of capital possible. We did a task-chair seating line recently, and our cost on the project was around $200,000. That line does $10 million in annual sales. The past few projects cost us less than $1 million.
Our total revenue this year is about $200 million. Our EVA-to-capital ratio is about 10-1. Part of that is that we have the luxury of leveraging platforms from Steelcase. If we can use a cylinder from the Steelcase chair, then we don't have to develop it ourselves. Just like the Scion brand can borrow an engine from Toyota (TM).
How big is the team that makes the key product-development decisions?
It's about six or seven of us, including the department heads. We hold a different meeting every month called the Turnstone Product Committee meeting, and everyone at Turnstone comes to that. It's like a town hall to discuss the status of every project. It gives people a chance to speak up and raise any problems early on. Also it creates buy-in. If people can raise concerns early, then they get a chance to feel ownership.
Once a project receives the green light, how quickly do you get it to market?
The Pet Lounge concept came to us in April, a year and a half ago. We already had a wait list of projects we wanted to start, but we decided it was so innovative in its use of materials that we wanted to do it. We showed the chair at Neocon that June and introduced it in September. So in total it was a six-month process.
Large companies are generally known for moving quickly. Do you think that Turnstone can move so quickly because it's operated independently from Steelcase?
I think the key to speed is focus. That's more important than whether a subsidiary is very integrated or very separate. Focus brings the ability to go fast. If you know where you're going, you know the bumps in the road.