Ask somebody “How’s business?” and the reply is perennially based on sales volume. But what about profit margins? Return on equity? None of your business, that’s how!

The traditional bigger-is-better mentality is still a driving force in our industry. The old joke about losing a dollar for every sale, but making it up in volume is a motto for too many — no matter how big or small that volume actually is.

“We need a paradigm shift in the industry from growth in volume to growth in quality, growth in technology and growth in profitability,” wrote Hugh Rice, a senior vice president at the FMI Corp. in our first Pipe Trades Giants issue in 1994. “Every contractor needs to believe that profits are more important than volume. Every contractor needs to maintain volume and equity at a level that will ensure survival when the inevitable financial reversal occurs. Every contractor needs to take immediate steps to double or triple their profit margins by the end of the decade.”

Rid yourself of bias toward growth, Rice advised three years ago, and start making more profit.

So what does PM do? Publish our latest Pipe Trades Giants list, of course — another ranking by volume of the 100 largest plumbing and piping contractors. (See page 86)

But Seriously Folks: Unless we can tap into the computers at the IRS (which, come to think of it, probably isn’t that hard) we’ll always be basing our annual list by sales volume. Still, as we go about the work of tabulating the results and interviewing some of those who have made it, evidence of Rice’s paradigm shift becomes more and more apparent.

J.H. Kelly (No. 15), for example, just instituted its own School of Construction to better train its work force. J.F. Ahern Co. (No. 24) also has a comprehensive orientation and training program designed to increase the productivity and career opportunities of all its employees. In addition, the firm analyzed its marketing opportunities and, as a result, increased its focus on industrial and commercial service work. Joseph Davis Inc. (No. 41) recently reorganized its management into specialized divisions in order to provide customers with a “one-stop” shop. Berg Inc. (No. 55) formed a special field productivity committee. And many others report purposely selecting one market while avoiding another because the former offers more profit than the latter.

Sure, it feels great to take pride in the top line. And for that reason, we’ll be back next year with another volume ranking. But many of our Pipe Trades Giants are clearly more aware of what it is they do every day. With project schedules zipping from the “fast track” to the “flash track,” contractors have little choice but to make the utmost of customer service, project management, field productivity and employee satisfaction.

By and large, most of these efforts spring from some sort of quality initiative. Quality has been an industry buzzword for more than a decade. However, over time, the term has been used so loosely that it’s lost its meaning. Quality isn’t just about doing the right thing the first time, but about continually pushing to do the right thing the first time better. Because if you aren’t, someone else will.

For a company that’s picked up the quality banner take a look at No. 38, J.B. Rodgers Mechanical Contractors, Inc., Arizona’s largest mechanical contractor. Here’s a company that has embraced quality from the top down and back again — even making its own suppliers more quality-conscious in the process.

Quality Was King: Quality workmanship was the rule of thumb when the company was founded by James B. and George B. Rodgers in 1948 in Phoenix. During the late–1970s, J.B. Rodgers grew more than 200 percent as a result of extensive quality work in the electronics industry. In 1980 alone, the company was awarded more than $12 million worth of contracts from Motorola, Intel and ITT Courier. However, by 1985, the company began experiencing management and financial difficulties that threatened its existence. Quality, to a degree, had fallen by the wayside.

In 1987, Ron Rodgers, its current president, decided to step in and do what he could to resurrect the ailing company. After purchasing the business, Rodgers took the company reins and began fulfilling his vision by enlisting a crop of young, aggressive managers as part of a long-term restructuring effort. For the most part, the new team reflects the on-going educational change in the traditional construction industry — most have a bachelor’s degree in construction engineering degree, or in business, finance or engineering.

“Prior to the restructuring, we were trying to be everything to all people,” Rodgers says. “We had to step back and prioritize those things that were important to us as a company and to make the appropriate commitments.”

Rodgers’ new focus was on quality, building long-term client relationships, adding needed service and maintenance segments, expanding the company’s safety program and fostering enhanced customer and employee satisfaction programs.

Since assuming leadership of the business, Rodgers has transformed the company’s fortunes. As a result, the management team’s efforts helped the company realize sales of nearly $33 million in 1992 — a $7 million increase from the previous year alone. In 1996, the contractor boasted revenues of more than $90 million. J.B. Rodgers continues to develop on–going relationships with high technology firms throughout the Southwest.

A Renewed Commitment: J.B. Rodgers decided to make a renewed commitment to quality after Motorola — one of its largest customers for more than 30 years — won the Malcolm Baldrige Award in 1988.

Shortly after winning the award, Motorola encouraged its suppliers to adopt total quality management (TQM) and work toward the criteria used to win the Malcolm Baldrige award. The intent was to encourage the firms that worked with the giant semiconductor manufacturer to achieve the highest quality standards possible, by getting into TQM in a big way.

J.B. Rodgers’ management team felt it was crucial that the company demonstrate its quality commitment to Motorola, and to its other customers. Understanding that a commitment to system-wide quality comes from the top, Ron made a corporate–wide pledge to learn about quality and began conducting extensive research that lasted for more than two years.

As part of the company’s overall research on the subject, the executive management team attended a one-week course on the Malcolm Baldrige award and read numerous books, articles and white papers on the subject. By early 1992, company executives were ready to educate their personnel on the subject, and seek a quality commitment from the 600 craft and 150 non-craft employees.

Company executives and consultants began discussing its quality initiative in order to educate and prepare employees, customers and vendors for impending changes to implement the Baldrige criteria.

In 1993, the company hired a TQM consultant to help employees, especially key project managers, better understand total quality management, value, quality awareness, needed systematic change and to rally people around the quality bandwagon. In addition, all of the managers received facilitator and problem-solving training.

“We first spent time with our employees helping them understand who receives their end product(s),” Rodgers says. “In some cases, it is an external customer, such as Motorola, or an ‘internal’ customer, such as a fellow employee. Using the knowledge they gained, our employees were able to work with their respective customers to better comprehend their requirements. It sounds simple. However, it’s a big shift from traditional thinking.”

J.B. Rodgers designated teams to identify processes and procedures in virtually all areas of the business — from materials delivery and production to estimating, budget control and communications. Teams made needed improvements, and suggested ways processes and procedures could be enhanced to better meet or exceed customer needs. They were supported by a team of management personnel, a quality steering team, various stakeholders and through extensive employee input.

In 1994, J.B. Rodgers employed a full–time quality consultant to develop a quality plan and a quality steering team. To continue its quality focus, the company then hired Dennis Sowards as its full–time quality manager to more effectively manage quality throughout the organization.

Defining Quality: Sowards helped the company separate the little “q” — technical workmanship — from the big “Q” — how the contractor managed its processes and systems.

“Technical expertise has always been a hallmark of this company, and will continue to receive our undivided attention,” adds Sowards, former director of the Arizona Quality Alliance. “Our workmanship in the field always has been of the highest caliber. For that reason, we chose to focus on the big “Q” first. J.B. Rodgers wanted to closely evaluate how it managed more than 200 processes, procedures and systems. An additional goal is to look at how the field is impacted by the changes we have implemented.”

Critical Success Factors and Measures

Safety — To maintain a culture that fosters safe work practices and complies with all safety regulations and customer requirements.

OSHA Incident Rate Loss Ratio EMR

Customer Satisfaction — To be the provider our customers consistently choose to meet their construction-related requirements.

Satisfaction Survey Rating Market Share Retention New Customers

All Employees — To maintain loyal and skilled employees who are able to make decisions and commitments consistent with the company’s vision.

Hours of Training/Employee Employee Satisfaction Rating Suggestions per Employees Employee Retention

Financial — To have costs and productivity such that we can sell our services and products with a reasonable return at prices that meet or beat our competition and have sufficient cash to minimize financing costs.

Return on Investment ATBs (% over 60 Days) Underbillings Current Ratio Debt Equity Ratio

Quality — To be constantly improving our products and services to meet and exceed our customers’ needs.

Cost of Quality Supplier Consistency Non–conformance to SOPs QSR/Baldrige Score

As J.B Rodgers began developing teams throughout the company, it also added a formalized values statement and a five-year strategic plan to its growing list of corporate commitments. The mechanical contractor used the Baldrige criteria to develop its own TQM plan, which became part of the overall strategic plan.

Part of quality is the measurement of results. The company’s management advisory team identified five critical success factors and determined how to measure each to ensure that quality was having the desired effect. Those factors and measurements are:

  • safety (OSHA incident rate, loss ratio, EMR);
  • customer satisfaction (satisfaction survey rating, market share, retention, new customers);
  • all employees (hours of training per employee, employee satisfaction rating, suggestions per employee, employee retention);
  • financial (return on investment, aged trial balances, underbillings, current ratio, debt equity ratio) and
  • quality (cost of quality, supplier consistency, non-conformance to standard operating procedures, Baldrige score).
  • Using the critical success factors and measures as guides, the mechanical contractor defined approximately 18 “critical processes” that needed the primary attention of its 23 department teams; processes such as estimating, that routinely impacted the organization in a timely and fiscal manner. A process is considered “critical” if:
    • it would cause harm if it is not watched or managed closely. “Harm” is this case means it would immediately affect the company financially and hinder its ability to continue as a business;
    • there is no short-term alternative;
    • it has a high cost of operation, uses large and/or many resources or has a major profit impact;
    • timing is a factor or variances in performance could cause major customer dissatisfaction.

    As a result of the company’s efforts, J.B. Rodgers increased employee satisfaction by 15 percent from 1995 to 1996 and achieved a high level of customer satisfaction. Teams also excelled in their efforts. As an example, one team of employees reduced material delivery from the shop to the jobsite from 1.1 days to 0.75 days.

    Added Boost: The quality drive received an extra added boost in 1994–95, when Motorola asked J.B. Rodgers to participate in its Quality Systems Review (QSR), a corporate quality program that formed the basis for the Malcolm Baldrige-type criteria. J.B. Rodgers agreed to participate in Motorola’s program, making it the first construction contractor ever to do so.

    For more than six months, the mechanical contractor’s employees prepared for the review. As part of the formal review, J.B. Rodgers staff gave oral presentations and submitted extensive documentation of its quality efforts; the company received excellent scores for its work. As a result of the review, the mechanical contractor identified and developed a corrective action plan to address weak areas. After one year, Motorola conducted a follow-up review on J.B. Rodgers’ corrective action plan efforts; the review raised J.B. Rodgers’ score even higher. The company continues to refine its quality efforts and to focus on the next level.

    Besides customer and employee input, J.B. Rodgers received other third-party evaluations of its customer satisfaction efforts. One such evaluation was a detailed customer survey completed by Arizona State University’s (ASU) Performance-Based Studies Group. ASU, which had developed a performance measurement tool, encouraged J.B. Rodgers to be the first contractor ever to participate in the evaluation. As part of that survey, the contractor submitted the names of all projects $50,000 and more that it had conducted for customers during 1995. The results of the ASU survey, which were high for the industry, validated the satisfaction figures already determined internally by the mechanical contractor’s own customer survey.

    “We feel we are approaching the peak of this five–year endeavor, and that the results we have been seeking will be coming to fruition in grand fashion,” Rodgers says. “Customers are beginning to take notice and are understanding the value that our big ‘Q’ brings to their projects.”

    Expanding the Effort: Of the many changes implemented along its quality travels, J.B. Rodgers changed its employee performance review system. No longer were employees rewarded simply by merit or sole performance, instead employees are now evaluated for their contributions to team segments.

  • “Employees now focus on the success of the company.” Rodgers says. “Because as the company succeeds, so do individuals. Our teams even have developed charters to help them identify and implement company goals collectively.”
  • To achieve team success, annual incentive program criteria was changed so it was company–wide — instead of focused on the individual. Employees not only shared their goals with their respective supervisors, they also gained a team supervisor who now reviews goals with them on a regular basis. As a result, team thinking has become the norm.
  • The company also continued its strong tradition of training excellence — an expansive commitment that calls for 40 hours (minimum) of training per year for every non–craft employee. In 1996 alone, the company contributed more than $180,000 to training its staff. Training constantly is evaluated and new classes are added and modified as training needs dictate. Initially, J.B. Rodgers ventured outside company walls for all of its training needs. Now, however, it offers classes in-house, including TQM, creating solutions that work and facilitator training.
  • At the same time, J.B. Rodgers began incorporating the quality message into all of its communications, both internal and external. Quality now is the topic of discussion in its quarterly customer communication, The Pipeline. Employees also discuss various aspects of the company’s quality drive to excellence in two internal publications, The Weekly Communiqué and a monthly employee newsletter known as The Mechanical Press. Specialty publications, such as its quarterly technical communication, TechLink, also provide forums for clueing other customers in to the contractor’s commitment to superior quality throughout the organization and beyond.
  • In addition, the company developed and implemented a suggestions program known as “Bright Ideas.” This four–year–old program, which was designed to encourage continual improvements, receives the active participation of nearly 50 percent of all company employees.
  • Taking its initiative to the next level, J.B. Rodgers created a quality program for its key vendors, called the Vendor Alliance Program. Initiated in 1995, the company developed what it believes to be the first contractor-driven program of its kind in Arizona. According to purchasing manager Bob Lawson, the goal of the program is to strengthen vendor relationships and to better ensure quality.
  • “The alliance program gives us the chance to involve our vendors, and to reduce costs while meeting the demanding needs of our employees and the ultimate customer,” Lawson says.
  • Down the Road: Developing and managing a quality program is hard work — any J.B. Rodgers employee can tell you that. However, twice the challenge will be to maintain its current efforts, and to take them to an even higher level of excellence. In addition to monitoring the effectiveness of existing quality activities, Sowards now has begun focusing on support systems and processes, and productivity at the craft level.
  • “We will continue to refine our measurements internally and externally, and to seek the input of all our customers,” Sowards says. “This will ensure the company’s improvements move forward.”
  • J.B. Rodgers is focusing on all of its customers to better determine what quality means to them. In addition to the existing programs and activities, the company continues to restructure itself internally to better hone in on customers’ needs and concerns. For example, the company is currently developing customer relationship managers to handle the day-to-day needs of specific customers. Their jobs will be to truly understand customers’ requirements and to assure those requirements are met.
  • According to Rodgers, the toughest part for employees is understanding that quality is not an initiative or a program, but rather the way the company conducts its business.
  • “We have a clear understanding company-wide, that this will be a long and arduous process,” Rodgers says. “It is important that everyone know and comprehend we are in for the long haul, and that quality will be a goal for all of us forever. After all, we are focused on continuous improvement. Because for J.B. Rodgers, it is a journey not a destination.”