This course focuses on the common human resource ("people") challenges faced by existing private businesses when they attempt to grow substantially. PART 1 OF THE GROW TO GREATNESS COURSE IS NOT A PREREQUISITE FOR TAKING THIS COURSE.
Room and Board: Quality and Relationships
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Grow to Greatness: Smart Growth for Private Businesses, Part II
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Growth is Much More Than a Strategy—It Requires a System
The required reading is Edward D. Hess, “Room & Board” Case Study. The second required reading is “Growth Is Much More Than Just A Strategy: It’s A System.”
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Edward D. HessProfessor of Business Administration
Darden School of Business
Alright, now let's go into the room and board story.
Fascinating story, wasn't it? My MBA students when they read this case
they can't believe it. When I asked after doing the Room and
Board story every year, how many students here would like to go to work for Room and
Board, very few raised their hand. Because it's so different, it's so
different. It's really interesting, because usually I
have Room and Board executives come to Darden when I teach the case and I ask the
question, and they look around the room, but they're not surprised.
They're not surprised. Room and Board built the business
basically based upon two things. You can describe it with two words:
quality and relationships. And when John Gabbert formed his business,
he had reached the point in life where he decided he wanted to do something that was
quality, and do it with people he enjoyed being around.
And he built a business based on those two principles, quality and relationships.
And I'm going to read now and excuse me, you know it's the first time I've done
this. But I, I want to get his words right.
At Room and Board, we hope you find meaning in your work.
There is both tremendous productivity for the company, and personal fulfillment for
each staff member. When someone finds their life's work,
wonderful, it's a wonderful circle of success.
Wow, the CEO is saying this, we hope you find meaning in your work.
If you find meaning it's high productivity for the company and it's personal
fulfillment for you. And wasn't it interesting, when you read
the case, when you, you got to that part and the philosophy came out.
We want people to be happy in the jobs they're in.
That their life fulfillment, we don't want people that always want to have a ladder
to climb, that are looking for promotions up or transfers.
We're looking for people that enjoy what they're doing an find meaning in it, and
want to be the best everyday and we will pay you very, very well.
And you will have a professional career, and you will live a good livelihood and
make a difference. Wasn't that interesting?
That's completely contrary to at least in the United States, a lot of people think,
not so contrary in different parts, different parts of the world.
In Room & Boards DNA was that. Quality products and quality relationships
with suppliers, employees and customers. John said, I'm going to read it again, I
never wanted to be the biggest, I never thought about size.
I just wanted to be the best, and spend my time with good people doing something more
meaningful than just making money or keeping score.
Whoa. Stop a minute and think about that.
This mu-, this may be, the most interesting statement you've ever read,
about business. I never wanted to be the biggest, I never
thought about size. I just wanted to be the best, and spend my
time with good people, doing something more meaningful than just making money or
keeping score. And what we're going to talk about is,
well how did he spend time with suppliers, employees and customers and build this or
paint, build this business and paint this work of art, which is Room and Board.
You should go to the Room and Board website, look at it.
Look at the furniture that he designs and that these artisan craftsmen build for
him. Beautiful.
Go to a Room and Board store in the United States if you live in one of the cities
just to experience it, to get a feel, to see whether that store evidences, what the
case says and what John is aspiring to. And I'll make a, a bold statement here
ladies and gentlemen. If you leave this course, and even if you
took part 1 of this course, and you take one case away with you.
And if you are an entrepreneur or become an entrepreneur and you want one case to
read once a month, every month to learn, to remind yourself what it's all about,
it's the Room and Board case. Let's talk about quality products.
How did he define quality? He wanted to design, build and sell
classic, timeless, simple designs made of exceptional quality materials that will
last and be fashionable for a long time. Now what does that mean to you?
He wants the sofa, the chair, the table that he sells you, to be fashionable, to
look good, to wear good and to last a long time.
That's his value proposition, that when you spend money at Room and Board it will
last years. My wife has a fa, a fa, a favorite saying,
she says, cost per use. Anytime she goes shopping with me, she
always wants me to, she always wants to buy something for me.
And whatever, and I says I don't need that.
I says, it's too expensive. She says, cost per use.
It will last 10 years, divide the cost by the number of days times 10.
Cost per use. John uses, cost per use, except his stuff
is not that expensive. Classic, timeless, simple, exceptional
quality materials last and be fashionable, that's his customer value proposition.
His other customer value proposition, you remember from the cases, his sales people,
no commissions. Why?
What is he trying to do with no commissions?
What do you think? I'm listening for that brain working.
What do you think? Because he wants his customers to be sure
that the advice they're getting from his salespeople is not tainted, by whether
they make money on that advice or the money is tied to more expensive products.
We're going to give you the best advice, not the advice that we get paid the most
on. What we get paid, for working with you
Mr./Miss customer is not dependent on how big the sales receipt is.
It's dependent upon how happy you are and whether you come back, because the
employees are graded on customer satisfaction.
And his customer satisfaction numbers were phenomenal, 95%, customer satisfaction.
Give customers the ability to enjoy their furniture for a long time, quality and
style, that's meaningful. That's meaningful.
That's delivering, value. Let's look at his relationship with
suppliers. Do you remember in the case it said 85% of
all his products were manufactured in the United States by Artisan Suppliers?
Primarily family owned businesses. Since the case was written, the number
today is 95% of his products are manufactured in the United States, made by
artisans, family businesses. Businesses where Room and Board was the
big customer. A lot of products were made exclusively
for Room and Board. Well when you are a small business and you
have one big customer, what's your big fear?
Wow. That big customer is going to put lots of
pressure on me, price-wise. Because I have a big customer and customer
concentration, once I get everything up that I'm doing that work for that
customer, that customer's going to constantly squeeze me.
Squeeze me. What does John do?
John was looking for quality, dependability, flexibility, speedy
service, he didn't want to turn over suppliers.
He didn't want people going out of business for low profits and this is,
this, this is absolutely true. John meets with every supplier every year,
and John takes Room and Board financials and the supplier have their financials,
and it is open book. And John says, here's my, how much money I
made on these sofas. What'd you make?
How are you doing? You making enough?
Am i making enough? And they talk about what they're going to
do the next year. How many sofas is John going to agree to
buy? And when they leave that room, John and
that supplier, that CEO of that family business, both can look at each other and
say are you okay? Yes.
Are you okay? Yes.
Open book, transparency. John wants to make sure that his suppliers
are making a fair living like he's making a fair living because that builds what?
A relationship, trust, dependability. That means that if John has, all of a
sudden, a lot of orders for a specific type of sofa.
A specific wood, with a specific fabric on it, those suppliers can stop their
manufacturing, immediately change and do those custom orders, so that customer,
you, me, gets that sofa quickly, not in six months or nine months.
Wow, open book transparency. There it is.
Open book meanings to set annual goals with financials transparency and fairness.
Do you see what I mean that this is an unusual case?
Do you see what John is building here? Do you see the principles?
Do you see the behaviors? Do you see what relationship capitalism
means? The benefits, 85% of the products that are
in John's catalog he's got in stock. Special orders can be inserted ahead of
usual production. He's got control over quality, inventory,
availability. He can match, he knows what he needs to be
85% in stock. Let's go to employees.
Interesting wasn't it, about the employee part?
Very interesting. The principles of trust, respect, and
collaboration, John's business and employees, follow principles not rules.
Wasn't it interesting? There's no big rule book.
There's principles to apply. There's no big HR manual.
Okay? He discloses the business strategy for the
year to everyone. Business financials, not what individual
people make, not compensation of Jane or compensation of Joe.
But every employee, is in a meeting every month where the financials of the company
are talked about. How is the business doing?
What does it mean for us? Shared accountability, you don't have a
limit to your personal leave, or your sick days, I trust you.
I trust you that you care about your teammates and the company and our
customers. I trust you're not going to take advantage
of me and make believe you're sick, because you're an adult and a human being
who cares and understands the responsibility to be part of a high
performance organization, and I will trust you until proven otherwise.
Employees have a non-work life too, eight-hour work day.
Almost everyone in the company's a full-time employee with very good
benefits. Remember he wants low turnovers.
His turnover numbers were low. Retail industry, very high turnover
generally. You saw where the average tenure of John's
employees, okay, is about 5 years, that's the average, alright?
Many, much longer, you see this team, he's building a culture of collaboration,
respect for your views, listening to each other.
Collaborating, in order to have a relationship with each other, with my
suppliers, with my customers I have to be good at what?
Listening, relating, you can't have a relationship unless you relate.
Collaboration is relating, engaging, having the time to do that.
You read about the delivery people, John doesn't outsource delivery, where he's got
stores. And his delivery times are set, so that
there is extra time built in, so the delivery people can leave the customer in
a good place. Okay?
And if you've ever had furniture delivered you understand what that means.
If you've ever worked in a furniture store, I have.
What it means, you go in, the people think they want the couch here, you put it here.
Thank you ma'am, sign right here. And you're going out the door and they
say, wait! Maybe the couch should be here.
And you're saying to yourself, gee, ma'am, I got eight other deliveries.
Have, I mean, can you and your children or husband or significant other or friend or
partner move that, not at Room and Board, extra time is built-in.
So that, okay lets put the couch here. We step back, what do you think, they're
talking to the customer. You like it?
You're happy? Do we need to try it over here?
Do we need to try it over here? Take your time.
Now not all day, but I got minutes built in, okay?
Are you happy? Are you in a good place?
Are you happy with Room and Board? We're happy with you, thank you for being
a customer. See you next time.
All that is sort of built in. Employees are empowered to make decisions.
Different views are respected. Employees are expected to give input.
An John creates the environment, he restores, in the corporate headquarters.
Corporate headquarters has amazed, okay. Beautiful, beautiful kitchen, okay.
Bowls of fresh fruit, healthy food, where people can cook, prepare their lunch and
sit together and collaborate. Corporate headquarters there's a physical
fitness facility. Okay?
Because, Balance, mental acuity, physical acuity, it's all related.
Customers, Room and Board wants customers for life.
We will help you design your special home or space, and we will quickly create your
customized product. And one thing John felt strongly about, he
always hated when he went shopping and bought something, and then came back a
month later, and the thing was on sale. There are no sales or discounts to anyone,
anyone, designers, customers anyone. You can rely on getting the best prices at
Room and Board. And we talked about the sales people do
not work on commission. We talked about work-life balance, perks
and benefits. You see this group?
Think about it. Why were happy employees important to
John's business model? Take a moment and think about that, write
it down on your paper. Why is that necessary for this business
model? What is John, what is John's business
model? Take two, three minutes, then come back to
me.
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