You would be hard pressed to find a "let them eat cake" attitude when it comes to owner and employee relations at R.P. Johnson & Son in Andover, N.H., and Randall Lumber & Hardware in Taos, N.M. The level of mutual admiration among ownership, management, and associates at both businesses has garnered each of them the 2007 National Lumber and Building Material Association Excellence in Human Resources Award.
An Open Book
Sharing financials means sharing profits at R.P. Johnson & Son.
Vital Statistics: R.P. Johnson & Son
- Company: R.P. Johnson & Son Year founded: 1901
- Headquarters: Andover, N.H.
- Number of employees: 51
- 2006 gross sales: $17 million
- Pro sales percentage: 98%
- Key HR benefits: Open-book management, profit sharing, 401(k) program, health and disability insurance, employee cell phone plans, free tool and equipment rentals, anniversary acknowledgement program, pre-buy oil and propane program, direct deposit, paid vacation, holidays and personal time.
Nearly a decade ago, R.P. Johnson & Son stood at a crossroads. The Andover, N.H., dealer was landlocked, and its cupboard was nearly bare when it came to funds for expansion and key upgrades.
"We were at a very old facility," says Steve Johnson, owner and president of R.P. Johnson, noting that some of the dealer's buildings dated back to 1913. "It's the way building supplies buildings in New England were built: you started with a building or two, and you built another building, and you added on and you added on and you added on."
A consultant from the Northeastern Retail Lumber Association changed all that. The suggestion was made that R.P. Johnson adopt an open-book management system that would empower employees with more knowledge and decision-making abilities. It also would put the fate of the company in the hands of its associates and, perhaps, lead to greater prosperity–including funds for capital improvements.
The open-book management system originates from Jack Stack's 1994 book, The Great Game of Business. It calls for all employees of a company to possess relevant financial information so they can make better decisions as workers, including decisions that will benefit the company financially.
Since adopting the practice, R.P. Johnson saw sales double between 1997 and 2005. The two-unit dealer reached $17 million last year despite a collapsing market. New facilities were opened in 2000 and 2003, including a millwork showroom and new drive-through lumberyard, while its home center has undergone renovations and expansions.
"If we did not make the investments, we probably would still exist, but eventually we might have gone out of business because we would not have been able to keep up with our competition," Steve Johnson says.
Feed Was the Seed
According to Bill Bates, vice president and head of human resources, the mentality of the dealer's associates has changed since the transition to open-book management. For one thing, the average length of tenure of associates has grown from 4-1/2 years in 1997 to today's average of nine years.
"Our employees control how well this company does. If you don't think that makes people happy, come talk to them," Bates says. "The philosophy around here is that we are not giving someone a job, we are giving them a career."
When R.P. Johnson plans a budget for the coming year, an open-book committee meets to determine company goals. Each member of the open-book committee researches various aspects of the budget and different line items. Issues such as how much it costs to fuel trucks and heat buildings or what the inflation rate will be are brought to the table for discussion.
Although the committee typically consists of 10 associates, including Steve Johnson and department managers, anyone in the company is welcome to participate. "If we have 20 people, that's fine," Steve says. The group develops the company's entire budget for the year, breaking down sales, expenses and projected profits month by month.
Although the committee resembles a democracy constructed from the company's employees, Steve Johnson has the final say in the decision-making process–particularly since he owns 100% of the company.
"Steve has to be as realistic in his approach as the employees do in their figures," Bates says. "He has a final say based on what his return on investment will be."
Amy Shepard, R.P. Johnson's accounts receivable manager, says the program is unlike any other company she has worked at before. A nine-year veteran of the dealer, Shepard has sat on the budget committee for each of the last three years.
"Most companies I have worked for are not open with financials. That's a very different aspect of this company," she says. "We can make the difference–just like in a family budget. If the family is doing well, you are going on a vacation, that's great."
And if the family is not doing well, it knows that it needs to tighten up and pull together. Company salesmen know what targets they must hit, along with the extra effort needed to make a sale. "Everyone is in the mind-set of being an owner. They fight for sales," Bates says.
Company figures are reviewed at quarterly meetings where, if the budget is exceeded, checks are passed out to employees. If R.P. Johnson has missed its targets, the budget is reviewed line by line to show what happened and why there was no payout. At any time, any employee can look at R.P. Johnson's books.
A Stake in the Outcome
"Open-book management gives our employees a stake in the outcome, which is a term we use around here a lot," Johnson says. "The fact is they have something at stake here, and they can make a difference where they work and in their lives."
To participate in the open-book system, associates must have worked for the company at least two full quarters. Payouts are based on an employee's year-to-date wages in comparison to the total wages of the company. The longer the tenure, the bigger the payout. A core group of employees understands what it takes to keep the business running without running up the red ink. In fact, even with the housing slump, R.J. Johnson employees received a payout in the second quarter of 2007.
"In a downturn, it's been fun to watch this, although it's a little nerve-wracking," Johnson says. Other benefits employees have garnered from the inception of an open-book management program include a 401(k) program, paid vacation and holidays, and an employee cell phone plan. Bates has seen associates go so far as to shoot down potential benefits if it means a cut in profits.
If anything, R.P. Johnson has raised its level of service in recent years.
Jay Tucker, an area contractor who frequently shops the dealer's showroom, does not mince words. "They're wicked good!" he declares, using a popular New England turn of phrase. "They really make sure they go out of their way to make sure things go right for you."
Tucker recently had a client that he described as "extremely picky." The customer alleged that Tucker might have scratched some of R.P. Johnson's windows while installing them.
"R.P. Johnson could have easily said, 'These windows did not come in like that, and the heck with you,' " Tucker explains. Instead, R.P. Johnson helped Tucker reach a solution that satisfied all parties, including the picky customer. In Tucker's eyes, R.P. Johnson's associates are going out of their way to make sure business is going well for him.
"Our employees just don't show up at work every day and not know how they affect the bottom line of the company," Johnson says. "They look at it as a challenge, and they celebrate when they get their checks."