Doing it right Featured

7:26am EDT February 28, 2006

When Tom Murdough sold Little Tikes to Rubbermaid in 1984, then left the company five years later, many thought he was done with industry.

But Murdough wasn’t ready for retirement just yet. He had new ideas and plans to start another business — one that would go a step beyond what he did as founder and president of Little Tikes.

In 1991, he started Step2 Co., a consumer products company that now competes directly with his former firm.

The company’s name signifies Murdough’s second entrepreneurial venture, as well as an everyday reminder that he wants to take Step2 a step beyond the competition.

“There were a number of folks who encouraged me to move ahead, and I thought of the opportunities to take the processes that we had developed at Little Tikes a step beyond what we had done there,” says Murdough, who serves as CEO. “Lots of new ideas came to mind. It was a desire to do things better.”

Step2’s revenue grew to more than $100 million in 2005, and it employs about 800 people. But Murdough has even bigger goals for the company, including his aim of growing it to become No. 1 in the industry. He plans to do that by using innovation to beat the competition.

To get innovative products, Murdough has implemented the right culture to inspire employees to be creative, yet still focus on product quality.

“Any viable business has to grow to develop,” says Murdough. “In order to grow, one has to come out with exciting, innovative, new products, in our case, exciting, innovative, new products that are characterized by quality, value and an unparalleled commitment to service.”

Do it right

Murdough conveys his message to his employees with one simple phrase.

“We don’t have any books or long-winded explanations of our philosophy. It is very simple: Do it right,” says Murdough. “Do it right for the customer. Do it right for our employees. Do it right for our shareholders. If you do things in that order and you do them well, it becomes the foundation for a strong company.”

The first step in getting your employees to do it right is to make them feel like they are an important part of the company so that they are motivated to do their best.

“Every day when our people come to work, whether it is in this (Steetsboro) plant, our Perrysville plant or our Fort Valley, Ga., plant, they need to feel a commitment to being a part of a company who is going a step beyond, doing things better and is committed to becoming No. 1 in their industry,” says Murdough. “I think there is a lot of pride that goes with that.

Management holds quarterly plant meetings as well as bimonthly office meetings to communicate the company’s direction and get feedback from employees. Murdough talks about things that were good and things that need to be improved, and about upcoming challenges.

“By keeping them informed on what the issues are that are influencing our success and failure, they are motivated to deal with those issues,” Murdough says. “When everybody is on the same page, it is much easier to understand why we are suggesting doing things this way or that way. When you don’t have communication and there is an edict that comes down and says, ‘Do this or do that,’ you inspire a distrust or lack of commitment.”

Murdough uses these meetings to personally explain to his employees why it is important to do something a certain way. Once they understand the reason, they are more likely to do it right and feel like an important part of the company. These meetings have helped the company overcome many of its challenges, he says.

“A year like 2005 is a great example of how we, as a company, have come through it very well, despite unbelievable challenges — the challenges of selling to a mass market that is very demanding,” says Murdough. “I’m talking about Target, Walmart, Toys ‘R’ Us, Home Depot or Lowe’s, all of whom are major customers of ours, at a time when material costs are going through the roof as a result of the dramatic increase in energy prices.”

Although Murdough doesn’t think a company can ever totally overcome the challenges of selling to a mass market, he credits new, innovative products with helping Step2 through this tough time. Rising energy prices are also a concern, something the company has offset by being more efficient in its manufacturing operations. But ultimately, it comes back to Step2’s employees and their desire to do their best to make the company more efficient and use their creativity to develop new products.

“At the end of the day, it’s our people, through their commitment to our company, that allow us to progress as we have,” says Murdough. “There is a tremendous amount of synergy amongst our employees. There is a very relaxed work atmosphere here.”

Trusting culture

Murdough creates that relaxed atmosphere by showing employees that management has faith and confidence in them to do their jobs without being prodded and without someone looking over their shoulders or constantly checking up on their progress.

“The R & D department is in a separate building, and those policies that exist in our main office don’t apply there and never have,” says Murdough. “When that group was brought in, it was done with the understanding that they have a different environment there. Their dress code, their hours and their work practices are their own.

“If someone wants to work on a project at home, they do it. The key issue is, are we getting the new product development that we want to get? And we do.”

Murdough believes that by creating a culture of trust and comfort, he is getting better products. Step2 comes out with about 25 new products each year, many of which were developed with no input from management.

“Artists and designers don’t respond well to a rigid atmosphere,” says Murdough. “They do respond well to a trusting atmosphere that allows them to pursue their own ideas in a way that is without structure. They do it on their own timeframe as the inspiration comes to them. I don’t doubt for a minute that some of our designers are working at 9 or 10 at night. They may not be inspired at 9 in the morning. If they have an idea and they feel strongly about it, we allow them to pursue it on their own and then present it.”

Although some employees don’t work well under this approach, Murdough believes it is effective.

“When the gun is to our head, we are hopeful that they will shoulder the load and respond — and they do,” says Murdough. “It’s a simple matter of trusting one another.”

However, building a culture of trust isn’t easy when you are growing and constantly hiring.

“As we bring new employees in, in this day and time, it’s more challenging than ever to get commitments from your employees,” Murdough says. “But once they have been here for six months to a year and have experienced the environment, they become believers and they feel like part of a team that they are proud of.”

Murdough helps new employees feel comfortable and at home by showing them good work practices and good processing techniques and by encouraging long-time employees to be helpful. New employees spend their first few days on the job with a trainer, who introduces them to the processes.

“There’s a lot of consideration given to them when they first come in to gradually get them up to speed, get them to understand the safety procedures, the efficiency steps we take and the other things that we do that contribute to them being efficient and effective employees,” says Murdough.

Still, not everyone can handle the hard work that Murdough requires.

“We have a number of employees who think they want to work for us and they come in and look at what has to be done and they leave,” says Murdough. “Some of them leave the first day. But those are people who don’t want to work.”

And those are people that Step2 can do without. Murdough expects a lot from his employees, but he also rewards them for their hard work.

“When it is possible for them to take time off, we are happy for them to take it,” says Murdough. “A very big component of our approach to our employees is a bonus program that pays them — historically, it has been double-digit — returns on their annual income at Christmas time.”

The bonus program is based on Step2’s earnings, and bonuses average between 10 percent and 17 percent of an employee’s annual earnings. This program is an added incentive for employees to do it right.

Murdough puts a lot of responsibility on his employees to continue to come up with new products and grow the company, yet at the same time, he knows the drawbacks of growing too fast.

“It happens when the marketing team gets out in front of manufacturing, and perhaps product development gets out in front of manufacturing and puts too great a demand from a timing standpoint and from a complexity standpoint on the manufacturing operations,” says Murdough. “Then all of a sudden, problems can develop. You miss shipping dates, quality can suffer, there might be mechanical issues or product issues that may not have been given as much consideration as they need to be given.”

Murdough is taking extra care not to grow too fast and damage his company’s reputation for quality. He plans to grow Step2 at a rate of 15 percent or more every year and do so in a way that allows it to maintain the integrity of its processes and operations.

One way Murdough plans to do this is by moving into new product categories. Which ones? For now, he is keeping that a secret, but he is confident that his future plans for the company will lead it to growth without compromising quality, because he has created a culture that will accept no other result.

HOW TO REACH: Step2, (800) 347-8372 or www.step2.com