Sunday, June 8, 2008

Herman Miller's Clinical Trials


Herman Miller took the office by storm with an ergonomically correct chair. Now it's trying to build up its hospital business



It seems fitting that Herman Miller (MLHR) is remaking its Aeron chair—once a $1,000 status symbol that allowed Web moguls of the '90s to sit coolly and comfortably while navigating the Internet—as hospital furniture. Just as the leaders of the dot-com boom are themselves graying, the office-furnishings giant hopes to cash in on one of this era's megatrends: the graying of America.

The Aeron's ergonomics have now inspired the Nala, which has an easy-to-adjust seat designed, in theory, to help people recovering from surgery. Herman Miller's first patient-oriented product for the clinical market, the Nala makes its debut on June 9 at Chicago's NeoCon World's Trade Fair, a furnishings industry show, and will go on sale to hospitals in the fall for a list price of $1,800—pretty costly for patient chairs.

The timing could be right. With many companies downsizing or freezing new hires, demand for office furniture—even the still-popular Aeron, which now sells for $750—is expected to decline. Although the Zeeland (Mich.) company's revenue rose 10.5% last year, to nearly $2 billion, growth is slowing from 14.6% a year earlier. Herman Miller already has a growing business supplying hospitals and doctors' offices with furniture, including desks, chairs, pharmacy shelves, and steel carts. While the company doesn't break out unit sales, it says health-care furniture revenue has grown at an annual clip of 15% for the past five years. Now its designers are taking a closer look.

Moving into hospitals makes sense for designers of office furniture. "The need for more ergonomic hospital furniture follows naturally the trend that has happened in the office in the last 20 years or so," says Pascal Malassigné, a research scientist at the Veterans Administration Medical Center in Milwaukee and an industrial design professor at Milwaukee Institute of Art & Design. Because many hospitals need to upgrade outdated facilities, now is a smart time to develop innovative clinical furniture, he adds.

Why not, then, Herman Miller designers wondered, do for patients what's been done for those confined to hours of desk labor—make the seat as comfortable and functional as possible.

Using the existing design and engineering intellectual property that allows the Aeron and other chairs to tilt smoothly had another plus: Herman Miller could avoid making a costly new research and development investment. "We didn't want to go out and reinvent," says Tom Granzow, senior program manager for Herman Miller for Healthcare, who ran product planning and strategy on the Nala project. The company saved a year of R&D time.

Still, Granzow's team needed to determine whether such a design could apply in the realm of clinical furniture. Beginning in 2005, it conducted research in nine hospitals around the country. Designers and engineers visited patient rooms and met with nearly 200 nurses and doctors. The company also enlisted Boston-based innovation firm Continuum, known for its work in health-care-device design, to conduct research and advise on aesthetic concepts.

The study revealed how difficult it is for patients to get up from traditional stationary chairs found in most hospitals. That work clarified Herman Miller's goal: to create a transitional piece of furniture that can help a patient sit up with ease after being confined to a hospital bed for days or weeks, and to do so without using full muscle control or a caregiver's help.

Nurses and physicians also advised on several crucial details, such as making sure an intravenous-medication line wouldn't catch on the chair's arms and the need to find antimicrobial upholstery that could be cleaned if blood or other fluids get trapped in the seams.

Beyond such practical concerns, both design teams wanted to create a visually pleasing chair that would serve as a brand symbol, as the Aeron has for the past 14 years. The aim was to make an inviting piece of furniture that looked anything but clinical while serving clinical purposes.

It's such user-centered research that could give Herman Miller an advantage over established clinical-furniture makers, says Roger Martin, dean of the Rotman School of Management at the University of Toronto, who consulted with Herman Miller in the early '90s but was not involved with the Nala's development. "We're seeing the beginning of a revolution in health care around people thinking of the user's experience," he says.

Already, rival Steelcase, (SCS) which leads the office-furniture segment with $3.4 billion in annual sales, has had a successful run with its Nurture by Steelcase line of hospital furniture, which offers patient chairs and also is based on user-centered design. (Steelcase doesn't break out sales figures.)

But Herman Miller is taking a different approach. While Steelcase chairs are designed for patients recovering from specific procedures, the Nala is meant to be bought in bulk by hospitals and used by a variety of patients.

With its identity as a patient chair, the Nala most likely isn't destined to become the status symbol the Aeron once was. But its debut could help the furniture maker in a healthy—and increasingly competitive—market.

One Laptop Meets Big Business


The big idea of giving PCs to poor children has been challenged by educators and business. Here, follow the misadventures of One Laptop per Child



One by one, the children ran into the school yard, lining up in a grassy field next to a low-slung building of classrooms topped by a rusty steel roof. Most of these children in Luquia, a tiny, impoverished town 13,200 feet above sea level in the Peruvian Andes, wore ragged navy-blue uniforms, and many had not bathed in days. Their small adobe homes have dirt floors, no running water, and no bathrooms. They share sleeping space with dozens of squeaking guinea pigs, which scamper underfoot before becoming the family's rare meal of meat. The children, then, were understandably giddy with excitement in May as principal Pedro Santana handed them the most valuable thing they had ever owned: a small green-and-white laptop computer.

These children are among the first in Peru to receive laptops from a trove of 140,000 the government plans to distribute to poor rural students this year in a bold bid to revolutionize the country's dismal educational system. Yet even as the students enjoyed one of the biggest thrills of their lives, the organization behind the computers, One Laptop per Child, was in danger of cracking.

The outfit begun by former MIT Media Lab director Nicholas Negroponte had been thrown into turmoil by the stress of trying to achieve the audacious goal of transforming learning by supplying millions of the world's poor children with laptops. Six weeks earlier, OLPC President Walter Bender, who helped launch the Peruvian deployment, quit abruptly in a dispute with Negroponte, the group's chairman. Software security leader Ivan Krstic left, too. Those departures followed a messy breakup with chip giant Intel (INTC) in January. Cambridge (Mass.)-based OLPC's travails seemed to signal that a group that had promised to rescue the world's poor children from ignorance was itself in need of a lifeline.

The fate of OLPC is uncertain, and it's too early to judge the effectiveness of the computers. Still, it's possible to draw lessons about the difficulties of such grand-scale social innovation. The group's struggles show how hard it is for a nonprofit made up largely of academics to operate like a business and compete with powerful companies. They also show what happens when differing philosophies of education and beliefs in how software should be created go head-to-head. Values the group has promoted have met resistance in the marketplace, government bureaucracies, and classrooms. That Negroponte and his colleagues took on way more tasks than they could handle only complicates the situation further.

Since its launch three years ago, OLPC has fallen woefully short of Negroponte's initial goal of supplying Third World children with 150 million laptops by the end of 2008. Development of the XO laptop and software took longer than expected; the price came in at $188 each rather than the $100 first targeted; countries including Libya and Thailand reneged on initial pledges to buy large quantities; and competition from tech titans like Intel slowed momentum. Although pilot programs began in 2006 on test laptops, the final version wasn't ready until late last year. Now pilots are running in 20 countries, distribution has begun in two, and about 370,000 laptops have been shipped.

The group seems to have backed away from the brink in recent days. On May 15 it announced a tie-up with Microsoft (MSFT) to run the Windows operating system on the XO laptop, gaining credibility with a number of governments. And other backers like Google (GOOG) and Advanced Micro Devices (AMD) are holding firm. During the week of May 18, Negroponte ran a four-day conference in Cambridge that brought together education and tech leaders from 44 countries. About 500,000 orders were placed, bringing the total to 750,000 outstanding orders.

A chastened Negroponte no longer predicts mass adoption in short order, but he remains confident that OLPC can have a major impact. He sees it playing the role in computer-aided learning that Muhammad Yunus' Grameen Bank has had in the global spread of microcredit. Grameen started something that many others now practice. "We're not building an empire. We're building a movement," Negroponte says.

Now, as the initial tech development phase has wound down, the organization faces a more daunting challenge: deploying and integrating millions of laptops in schools and communities. If something goes awry, the fragile credibility it has stitched together in recent weeks could rip apart. "This is the moment of truth," says Chuck Kane, a longtime software industry executive who became OLPC's president on May 2. "One unsuccessful deployment and it might mean the end of the project."

SEARCHING FOR THE INTERNET

Spending time in villages where the laptops have been distributed shows both OLPC's promise and immense challenges. In Luquia, Justo Miguel Común, a fifth-grader who is the youngest of seven children of subsistence farmers, was delighted to get his laptop in late April. "I like the math games, and I love the camera," he said two weeks later. On a chilly evening, his mother, Alejandra, who quit school after first grade, watched proudly as her 11-year-old son sat at a small table outside their adobe house with his face illuminated by the light from the screen. "This computer is going to be a very good thing for learning," she said.

Yet when BusinessWeek asked her son detailed questions, it became clear he didn't fully understand the computer's capabilities. His teacher had told the class to search the Internet for information on the environment, but the boy was stumped. "I was trying, but I couldn't find anything," he explained. He seemed to think the Net was something contained within the machine.

Such are the challenges of introducing not just a strange new machine but an alien world to a child brought up in isolation from outside culture. The leaders of OLPC believe the laptops must be much more than electronic substitutes for textbooks if they are to profoundly effect learning. The group, an offshoot of MIT's Media Lab, which Negroponte launched 23 years ago, has based its educational philosophy on the theories of Seymour Papert, a Media Lab professor who pioneered the use of computers in elementary education in 1967. Papert, now retired, developed a theory called Constructionism, which posits that young children learn best by doing rather than by being lectured to. So to create a tool that could deliver more than rote lessons and e-books, OLPC designed the machine and its software to enable collaboration, exploration, and experimentation. "We're hoping that these countries won't just make up ground but they'll jump into a new educational environment," says David Cavallo, OLPC's chief education architect.

CULTURAL IMPERIALISM?

While this philosophy is essential to the mission of OLPC, it's also a source of tension. Current educational leaders in Peru embrace Constructionism, but most countries base their education systems on the idea that teachers pass their knowledge to receptive students. That was a problem for OLPC in China as well as India. India's education department, for instance, calls the idea of giving each child a laptop "pedagogically suspect," and, when asked about it recently, Education Secretary Arun Kumar Rath barked: "Our primary-school children need reading and writing habits, not expensive laptops."

Some observers accuse OLPC of cultural imperialism. "It's arrogant of them. You can't just stampede into a country's education system and say, Here's the way to do it,'" says William Easterly, a professor at New York University and author of The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good.

In fact, though OLPCers still have faith in Constructionism, they don't force the approach. Nor do they still insist on open-source software, a change that has caused some of the deepest rifts within the group. Originally, rather than using Microsoft's pricey Windows and ready-made commercial applications, they chose the Linux open-source operating system and created a new user interface and applications designed specifically to aid in learning by doing. A key reason to support open source: It allows students to tinker directly with software. However, some countries, such as Libya, which initially agreed to buy more than 1 million laptops, backed out and chose a Windows-based alternative from Intel. One attraction: Microsoft cut the price of a software package for poor schools from $150 to $3.

So when Negroponte chose to do business with Microsoft, turmoil erupted within the organization. After an Apr. 1 meeting during which the board agreed to break bread with Microsoft, Bender resigned. For weeks, OLPC's online message forums lit up with an angry debate. The anti-Microsoft side believes software shouldn't be owned but shared freely. To Negroponte, the choice was simple—and necessary—pragmatism. "It's like Greenpeace cutting a deal with Exxon. You're sleeping with the enemy, but you do it," he says.

Negroponte has had to fend off critics from the start. Early on, Intel and Microsoft executives, confronted by this charismatic rabble-rouser with his promise of affordable computing for the masses, called the XO a toy. They rushed out alternatives. Suddenly, Negroponte and his band were up against two of the most powerful tech giants in the world. And the giants played rough. Even after Intel joined with OLPC last year to help design a version of the XO powered with its chips, some of its people belittled the XO to governments who had agreed to buy it. Negroponte accused Intel of undermining his cause. Intel complained he was pressuring it to stop selling its Classmate PC for poor students. Negroponte now says he wishes he had been able to hold his temper and avoid a split.

He also faults himself for not managing his organization more effectively. "I'm a visionary, not a manager," he says. He ran the organization like a science project rather than a business. People had overlapping responsibilities. The staff of 23 regular employees and 26 consultants lacks the resources to support the needs of the pilot programs and deployments now under way—much less massive expansion. Negroponte, who travels incessantly to visit heads of state and education ministers, was spread too thin. So was Bender. Kane, who joined the organization as a part-time chief financial officer last year, is now running day-to-day operations. Already, the operational chaos has diminished. Now he's busy closing deals with countries and lining up business partners to help produce the technology for the next-generation XO. "We're moving from academic brainstorming mode to execution mode," Kane says.

DEBATABLE USEFULNESS

OLPC might not be in such turmoil if Kane had been promoted earlier. Nigeria had agreed to buy 1 million XOs, but after a competition among three alternatives, the country chose Intel's Classmate PC instead. Why did OLPC lose out? Intel provided more support, writes Isa Muhammad Ari, director of administration for Nigeria's Federal Capital Territory, in an e-mail.

With OLPC, most of the weight of training is carried by local education officials. In Peru, the Education Ministry is racing to prepare teachers. It gives them a 40-hour course that includes an introduction to the learning programs, instruction on basic repairs, and tips on how to use the laptops to enhance their lessons. Teachers BusinessWeek spoke to in two villages where the machines have been distributed seemed excited about them. One recent morning, teacher Ananias Richard Inga played a catchy song programmed in Spanish into the laptops to teach his first- and second-graders how to write and pronounce vowels. When seven-year-old Idelma Huarocc, her brown cheeks burned and peeling from the sun, typed "Idelma ama a mamá" (Idelma loves mama), she wiggled with pleasure as the computer's voice read her sentence. "This really motivates them, and it makes it easier for kids to advance at their own pace," says Inga. Teachers at another school where the laptops were tested in a pilot project that began a year ago report their students' reading comprehension has improved significantly, the drop-out rate is down, and students who once said they expected to be farmers like their parents are now dreaming of becoming lawyers, accountants, or engineers.

Even with these results, the Unified Union of Education Workers of Peru, representing some 320,000 public school teachers, is skeptical. "These laptops aren't part of a comprehensive educational, pedagogical project, and their usefulness is debatable," says Luís Muñoz Alvarado, the union's general secretary. Muñoz never had a chance to explore the laptops, though. In what seems an easily avoidable blunder, the Education Ministry has not explained the program to the union.

Recognizing the need to integrate the laptops into communities, OLPC is scrambling to develop guidelines for deployment based on the experiences in Uruguay and Peru, the two countries with the largest distribution so far. The group is also bringing in consultants to advise countries on how to integrate the PCs. One, Edith Ackermann, a visiting scientist at MIT, says OLPC should have involved more educational experts in creating and testing the applications. Instead, she says, "The hackers took over." The result is some programs are too complex for many children to use. "Now we have to deal with this. I don't know if it's too late," says Ackermann.

While some critics have called on OLPC to hire aggressively so it can provide on-the-ground support for dozens of countries at a time, Negroponte and Kane plan instead to rely even more on outsiders. They'll forge alliances with local tech companies and nongovernment organizations that will provide deployment support.

Although each country has a different situation, they can learn from common experiences. OLPC plans on using Haiti, the poorest country in the Western Hemisphere, to test ideas about how to best integrate the computers with society and to create a template for other countries.

Just getting started in Haiti will be a challenge. The group's second trip there was delayed by riots over food shortages in April. The first shipment of laptops was held up in customs for weeks. Donors are paying for some laptops, but not all. Asked how Haiti can afford to pay for PCs when its citizens are starving, Guy Serge Pompi, the Haitian educator coordinating the project, answers: "You can't just focus on the present. The starving is the present. The future is education. We need to train our students for better jobs and a better future."

The desire to educate students for a better future was shared by officials from Rwanda, Colombia, Afghanistan, Senegal, and other countries. Although large-scale studies have not been done to show whether the laptops improve learning, initial successes in Uruguay and Peru have emboldened others to make the effort. In Peru itself, the laptops are gaining momentum. Regional governors have asked the Education Ministry to order a total of more than 500,000 additional laptops. "We aren't so overly optimistic to believe that distributing laptops is going to resolve the social demands of people who have been marginalized and submerged in extreme poverty for decades, but we believe it is a great step forward," says Education Minister José Antonio Chang.

Thursday, June 5, 2008

Food Is Gold, So Billions Invested in Farming

Huge investment funds have already poured hundreds of billions of dollars into booming financial markets for commodities like wheat, corn and soybeans.

But a few big private investors are starting to make bolder and longer-term bets that the world’s need for food will greatly increase — by buying farmland, fertilizer, grain elevators and shipping equipment.

One has bought several ethanol plants, Canadian farmland and enough storage space in the Midwest to hold millions of bushels of grain.

Another is buying more than five dozen grain elevators, nearly that many fertilizer distribution outlets and a fleet of barges and ships.

And three institutional investors, including the giant BlackRock fund group in New York, are separately planning to invest hundreds of millions of dollars in agriculture, chiefly farmland, from sub-Saharan Africa to the English countryside.

“It’s going on big time,” said Brad Cole, president of Cole Partners Asset Management in Chicago, which runs a fund of hedge funds focused on natural resources. “There is considerable interest in what we call ‘owning structure’ — like United States farmland, Argentine farmland, English farmland — wherever the profit picture is improving.”

These new bets by big investors could bolster food production at a time when the world needs more of it.

The investors plan to consolidate small plots of land into more productive large ones, to introduce new technology and to provide capital to modernize and maintain grain elevators and fertilizer supply depots.

But the long-term implications are less clear. Some traditional players in the farm economy, and others who study and shape agriculture policy, say they are concerned these newcomers will focus on profits above all else, and not share the industry’s commitment to farming through good times and bad.

“Farmland can be a bubble just like Florida real estate,” said Jeffrey Hainline, president of Advance Trading, a 28-year-old commodity brokerage firm and consulting service in Bloomington, Ill. “The cycle of getting in and out would be very volatile and disruptive.”

By owning land and other parts of the agricultural business, these new investors are freed from rules aimed at curbing the number of speculative bets that they and other financial investors can make in commodity markets. “I just wonder if they need some sheep’s clothing to put on,” Mr. Hainline said.

Mark Lapolla, an adviser to institutional investors, is also a bit wary of the potential disruption this new money could cause. “It is important to ask whether these financial investors want to actually operate the means of production — or simply want to have a direct link into the physical supply of commodities and thereby reduce the risk of their speculation,” he said.

Grain elevators, especially, could give these investors new ways to make money, because they can buy or sell the actual bushels of corn or soybeans, rather than buying and selling financial derivatives that are linked to those commodities.

When crop prices are climbing, holding inventory for future sale can yield higher profits than selling to meet current demand, for example. Or if prices diverge in different parts of the world, inventory can be shipped to the more profitable market.

“It’s a huge disadvantage to not be able to trade the physical commodity,” said Andrew J. Redleaf, founder of Whitebox Advisors, a hedge fund management firm in Minneapolis.

Mr. Redleaf bought several large grain elevator complexes from ConAgra and Cargill last year for a long-term stake in what he sees as a high-growth business. The elevators can store 36 million bushels of grain.

“We discovered that our lease customers, major food company types, are really happy to see us, because they are apt to see Cargill and ConAgra as competitors,” he said.

The executives making such bets say that fears about their new role are unfounded, and that their investments will be a plus for farming and, ultimately, for consumers.

“The world is asking for more food, more energy. You see a huge demand,” said Axel Hinsch, chief executive of Calyx Agro, a division of the giant Louis Dreyfus Commodities, which is buying tens of thousands of acres of cropland in Brazil with the backing of big institutional investors, including AIG Investments.

“What this new investment will buy is more technology,” Mr. Hinsch said. “We will be helping to accelerate the development of infrastructure, and the consumer will benefit because there will be more supply.”

Financial investors also can provide grain elevator operators the money they need to weather today’s more volatile commodity markets. When wild swings in prices become common, as they are now, elevator operators have to put up more cash to lock in future prices. John Duryea, co-portfolio manager of the Ospraie Special Opportunity Fund, is buying 66 grain elevators with a total capacity of 110 million bushels from ConAgra for $2.1 billion. The deal, expected to close by the end of June, also will give Ospraie a stake in 57 fertilizer distribution centers and the barges and ships necessary to keep them supplied with low-cost imports.

Maintaining these essential services “helps bring costs down to the farmers,” Mr. Duryea said. “That has to help mitigate the price increases for crops.”

Mr. Duryea of the Ospraie fund dismissed the idea that financial investors, with obligations to suppliers and customers of their elevators and fertilizer services, would put their thumb on the supply-demand scale by holding back inventory to move prices artificially.

“It is not in our best interests for anyone to be negatively affected by what we do,” he said.

Perhaps the most ambitious plans are those of Susan Payne, founder and chief executive of Emergent Asset Management, based near London.

Emergent is raising $450 million to $750 million to invest in farmland in sub-Saharan Africa, where it plans to consolidate small plots into more productive holdings and introduce better equipment. Emergent also plans to provide clinics and schools for local labor.

One crop and a source of fuel for farming operations will be jatropha, an oil-seed plant useful for biofuels that is grown in sandy soil unsuitable for food production, Ms. Payne said.

“We are getting strong response from institutional investors — pensions, insurance companies, endowments, some sovereign wealth funds,” she said.

The fund chose Africa because “land values are very, very inexpensive, compared to other agriculture-based economies,” she said. “Its microclimates are enticing, allowing a range of different crops. There’s accessible labor. And there’s good logistics — wide open roads, good truck transport, sea transport.”

The Emergent fund is one of a growing roster of farmland investment funds based in Britain.

Last October, the London branch of BlackRock introduced the BlackRock Agriculture Fund, aiming to raise $200 million to invest in fertilizer production, timberland and biofuels. The fund currently stands at more than $450 million.

Braemar Group, near Manchester, is investing exclusively in Britain. “Britain is a nice, stable northwestern European economy with the same climate and quality of soil as northwestern Europe,” said Marc Duschenes, Braemar’s chief executive. “But our land is at a 50 percent discount to Ireland and Denmark. We just haven’t caught up yet.“

Europe, like the United States, is facing mandated increases in biofuel production, he said, and cropland near new ethanol facilities in the northeast of England will be the first source of supply. “No one is going to put a ton of grain on a boat in Latin America and ship it to the northeast of England to turn it into bioethanol,” he said.

For Gary R. Blumenthal, chief executive of World Perspectives, an agriculture consulting firm in Washington, the new investments by big financial players, if sustained, could be just what global agriculture needs — “where you can bring small, fragmented pieces together to boost the production side of agriculture.”

He added: “Investment funds are seeing that this consolidation brings value to them. But I’m saying this brings value to everyone.”