Putting the House in Order
Turning around a troubled company can be hard -- when it's your parents', it can be even more daunting
Stopping the slide of a company is a difficult task. Turnarounds, after all, are about shifting directions, trimming people and operations, reallocating resources -- trying to be smarter than the folks before you. So what if the folks before you were, well, your folks?
That's Eric G. Johnson's challenge. As a child, Eric spent summers earning 25 an hour wiping and labeling jars of hair straightener at the Chicago company his father had founded in the mid-1950s. Eric worked there every summer through college. Upon graduation he did a three-year stint at Procter & Gamble Co. Then he went off to get his M.B.A.
With his business degree in hand, he rejoined the family corporation, which had gone public while he was an undergraduate -- the first publicly owned, African American managed company. It was 1977 and his father, George Johnson, was still running the show. It was also a couple of years after the last big year for Johnson Products: its market share in the black-hair-care industry it had helped create began a steep decline after it was forced by the Federal Trade Commission to put warning labels on lye-based hair straighteners. New competitors entered the fray; Johnson's sales slowed and profits declined.
Then in 1989 George and his wife, Joan, divorced; as part of the settlement, George resigned from the company and transferred all his stock -- 49.5% -- to Joan. Joan, who had not been actively involved in the company for almost 10 years, became chairman. And Eric, who'd been president for 10 months, became chief executive.
Daunting? Not only were his parents playing musical chairs, but Eric Johnson was taking charge of a company that in 1988 had lost $3.8 million on sales of $29 million, its fourth loss in five years.
His task was to continue, with even greater autonomy, a turnaround that he had set in motion under his father during the previous year. So far, Eric has been successful: in 1990, a year into his tenure, Johnson Products -- which now manufactures some 150 goods at a 200,000-square-foot facility with 232 employees -- showed a profit of $2.1 million on sales of $33.3 million. Moreover, he believes he is laying the groundwork for the company to become a major player in its industry again.
Here's what Eric Johnson needed to play the role of company heavy in the institution his father had built -- things, in fact, that any new manager needs when taking the reins of a struggling company.* * *
* A professional attitude. "I don't consider this a family business," says Eric. "It's a publicly held company, and we have all the objectives of maximizing profitability that go with any business. Everything, including my seat, is available if we can find someone who can do a better job."
His approach stands in stark contrast to that of his father. "Eric's father had an attitude that you shouldn't lay anybody off," says Neal Harris, Johnson Products' director of international sales, who's been with the company for 15 years. "And while that's very noble, it wasn't good business when we needed to make changes."
Instead, Eric has taken actions that made his father cringe. Over the past three years the company has cut payroll 36%, including the elimination of 7 of 10 officers. He also has drastically restructured the company's vendor relations, so that it now deals with 40 to 50 suppliers rather than 140. "We're talking about people my father has worked with for a long time," says Eric.
But the bottom line is that payroll was trimmed $2.8 million and the company is showing a profit. "This is not a social organization; it's a business," he says. "You let the business proposition drive the deal."
* A vision of where the business should go. "When George Johnson started the business, no black companies in hair care were doing a million dollars in sales," says Harris. "George wasn't fighting competition; he was fighting for the opportunity just to put the product on the shelves."
But today Johnson Products faces another set of challenges that do include competition. So Eric Johnson has reexamined systems that were developed during the 1970s and 1980s. The customer service department is being revamped to work more closely with the company's top 100 accounts and has instituted postshipment-satisfaction surveys. Quality control is no longer a separate department but has been incorporated into the jobs of line supervisors and R&D people. And a 10-hour-day, four-day workweek has been established, contributing, Eric says, to the company's ability to produce more goods with fewer people.
He has positioned the company for growth by selling off slow-growing subsidiaries and using the money to acquire more promising product lines. And on the strength of a new business plan, the company renegotiated its loans with a new bank, taking them from prime plus four to prime plus one and a quarter.
* Authority and autonomy as the cost cutter. George Johnson had been looking for someone who could run the business using his principles and ideals. Eric says he agreed to do so -- only if he really was calling the shots. "There were times when he needed a lot of explanation as to why, and yes, there was some second-guessing," says Eric. "He was skeptical about the 10-hour day and four-day workweek. And when I outlined the cutbacks, generally, he was all for it, but when he saw specific names, he said, 'Oh my God, not so-and-so.' But basically, I had the responsibility. I asked for the opportunity to do the job the way I thought it should be done, and he allowed that to happen."
Although Eric ultimately is responsible to his mother and other shareholders, his father's shadow continues to loom large. "I'm not here to be anything but supportive," says George, now a paid consultant to the company. Still, a moment later he adds, "But if you look at the numbers, we're not going great guns. I hope Eric's moves are right, but we have to see. His mother sure has a lot riding on it."
How to make a turnaround work
Some companies bring in outsiders to implement turnarounds. Johnson Products tried that in 1986 and lost another $2.5 million the following year. By 1989 Eric Johnson, then president, was prepared to try the task himself. Here's what he had to do:
* Reevaluate how systems worked. That meant rethinking how quality control was done, inventory was purchased, offices were equipped, and research dollars were spent.
* Reexamine products. In refocusing, the company sold off its position in a Nigerian manufacturing facility. It also acquired a prominent line of products that complement the company's line and increase its shelf space.
* Be candid. "Once a month I hold meetings to update all employees on where the organization is going," says Johnson. "People can buy into things as long as you tell them truthfully that this is what we've got to do for our survival. " n