To be honest, I couldn’t tell you if Chief Financial Officer Ronnie Barnett can play or read a single note of music (although there are photos of Barnett, the Hunts and other H&R staff in a Lynyrd Skynyrd lip sync performance at a United Way event). But after observing Barnett and the role he plays within H&R Agri-Power, one could draw a conclusion that he could do well with a baton in his hand. 

If the responsibilities of the orchestral conductor are to unify the performers, set the tempo and pace, and give clear preparations, well that sounds like Barnett and what he does at H&R.

Growing up on a small tobacco, row-crop and cattle farm in Kentucky, he watched his dad do business with Wayne Hunt both at Agri-Chem (fertilizer, chemical and seed retailer) and H&R. While he didn’t join the company until it’s fourth year of existence in 1994, he’s been part of it virtually from the beginning, as his CPA firm handled the company’s books before Hunt brought Barnett into the dealership.

Quiet and soft-spoken, Barnett “conducts” an operation that is different than most in the industry. For starters, it’s a large-scale operation (third largest group in the Case IH network), a business that went from private ownership to partial ESOP to full ESOP and made 4 acquisitions in the last 2 years -- with little sign of slowing down. And the firm’s systems, processes and now technology are so sought after in the industry that a mobile app (Power EQ) for quoting is now available to other dealerships.

Coming to Define the H&R Way

The company had existed for only 4 years when Barnett joined in 1994. H&R had just brought on its fourth location and had grown revenue 10 times in a 4-year period (from $3 to $30 million). “Wayne brought a new level of customer service into the business, and farmers recognized that and wanted to do business with us,” Barnett says of the rapid growth. 

But the dealership was struggling with integrations and systems.

“The business was doing well but it was too much growth, too soon and Wayne knew that business had gotten somewhat out of control,” says Barnett. “A lot of folks like to focus on the top line sales, and obviously that’s important, but cash is king. It’s not as fun to manage the balance sheet, inventory turns and debt-to-equity ratios as it is to get that charge from selling. But sometimes the best deal you make is the one you walk away from. You can sell yourself out of business in this world.” 

In addition to challenges with used inventories, that era of rapid growth also brought other “wild west” problems that needed correction. “There was inconsistency in how things were being handled from a business standpoint,” Barnett recalls. “Or if they were handled consistently, in some cases they were wrong. We found out quickly how slim the margins were in this business. When you’re trying to keep 2-3 cents on $1, there isn’t room for many mistakes — and you can make some big ones in this business.” Barnett’s entrance allowed him to set a new cadence for the company, which he’d learned would require more of him as it continued to grow to new heights.

Focusing On, Teaching Game-Changing Principles 

A big part of Barnett’s role is teacher. If an organization is going to go “open book” as H&R has, employees must know what they’re looking at. Enter Barnett. “We need to educate our people for them to be as good as they can be. You don’t send a soldier to war without a weapon, that’s how we look at it.”

When asked for examples of how he teaches the troops, Barnett described one of his favorite topics, parts and service absorption, which continues to be an area where opportunity exists.

He has a templated spreadsheet (see image below) that he uses as both a teaching and planning tool. It starts with a discussion on wholegoods sales, and realistic views of what’s possible for the coming year. “They might say ‘We think we can do 3% more’ and enter it. Then with service, we’ll discuss productivity. ‘Do you think productivity in your service department could be improved by 5%?’ They usually agree that it’s possible.”

The columns in yellow show the variable entries that can be discussed and entered during a meeting. In this example (showing a store with $17 million in revenue), a 3% increase in wholegoods sales, a 10% increase in parts sales, a 5% increase in service sales and a reduction of 4% in expenses equates to a net income gain of $267,350 and an absorption rate increase of 7.82% (to 73.30%). Visit www.DealershipMinds.com/H&RAgri-Power for a downloadable and enterable tool to use with your own teams and in-store data.

Click to enlarge

Then, Barnett walks them through expenses. “I’ll ask what they think is possible in expense reduction and we’ll plug in their answers.” 

It isn’t unusual, he says, to see the absorption goal improve by 10 points based on the numbers presented during that same meeting. “It has a dramatic effect on them and their understanding.”

Barnett says putting benchmarks into context of a larger plan is the key to understanding and executing. “It’s one thing to say absorption should be 80%, or that used inventory turns need to be 3.0-plus, but the words alone don’t have real impact. When it’s within the context of a detailed plan, they realize how a 3.0 inventory turn means less interest expense and higher used margins. It’s here that they realize the impact of these benchmarks on the whole operation and how to drive results toward them. Because it isn’t just something that we or Dr. Jim Weber say. It’s something that truly is going to help them.”

Planning & Accountability Processes

H&R has long had a detailed planning process in place, but it’s evolved over the past 15 years to end with each store location going through a work-through with the board of directors and leadership team. Presenting plans and answering to them has kept ratcheting up the accountability, says Barnett.

“We don’t believe in putting a budget together, giving it to the employees and saying, ‘Here, you need to do this.’ We feel strongly that’s the wrong way to do it. Our planning process goes deep into employees at the store level.” 

Barnett prefers the word “plans” over budgets because, as he says, “there’s activities behind those plans.” For instance, a salesperson’s plan for 3 new combines is also going to include the names of the prospects that will result in 3 sales.

Few dealer groups take the location-by-location exercises and in-person presentations as seriously as H&R, something that its peer group members continue to study and ask about at meetings. “More are looking at doing something similar,” says Barnett, but they must be willing to invest the time.

Barnett explains how the process starts at each store location, for sales, parts and service.

Sales — The process starts with a template and each salesperson is asked how many units they expect to sell of each piece of equipment. “They’ll plug in how many of each kind of tractor, combine and implements they’re going to sell. Once they plug those numbers in, it rolls up to a full plan for that salesman. And then, we can roll up those salesmen’s plans together for each stores wholegoods plan.”

Service Techs — A similar process and plug-in template is then followed for the technicians. Barnett says techs are asked questions like “How many hours are you going to work? How productive are you going to be? What’s your billing rate? What type of work are you working on -- customer or internal? Warranty work?” 

Say a technician says he is going to bill $250,000 next year. “We’ll know how he’s going to do that. The service manager has worked in concert on these plans with the tech, so he knows what he’s accountable for.”

Parts — The exercise for the parts staff covers questions on the quantity of tickets and the average value per ticket and plans for change for the coming year. “If a parts person did 500 tickets last year and says he’s going to do 600, we’re going to find out how he plans to drive that result.  Similarly, if the average ticket was $100 and they’re forecasting $125, we’re going to be looking for a narrative on what they’re going to be doing differently to achieve that plan.”

The formality of the process — at each stage — also serves to eliminate the presence of sandbagging. “We ask some pointed questions when we feel like that’s the case. If they say sales are going to be down next year and we don’t agree we’re going to ask them why. They’re going to get challenged on their assumptions if we don’t think they’re being aggressive. In planning, being overly conservative is just as bad as being overly aggressive.”

Presenting to the Board

After the individuals have done their template work and put together their detailed action plans, the store manager, service manager and parts manager come to Hopkinsville each December to present their plan to the board of directors. Each meeting generally takes 2-3 hours and the board will have as many as 4 meetings in a day. 

Barnett says it’s a time-consuming but worthwhile process, especially now that there are two independent board members (Dr. Jim Weber and Tom Yohe, formerly of Hoober’s Inc., a Case IH dealer in Pennsylvania, were appointed to the board in 2018.) “We’re in the middle of it every day, so they bring an outside perspective and ask questions that have added another dimension to the presentations.”

For those of you who’ve seen Dr. Weber in action (including a special 3-hour workshop at the 2019 Dealership Minds Summit, see www.Farm-Equipment.com/WeberWorkshop), you can anticipate what the board meetings might be like for the ill-prepared or sandbagger. “Yes, he’ll call him on the carpet if the assumptions don’t make sense. He isn’t shy about telling them that, nor reminding them of what they might have promised at the last meeting. He’s vocal about the need to justify plans.” 

Below, Barnett describes the structures of the meeting.

1. Parts Manager. “He’ll detail the sales budget and margin budget, and then move downward into inventory turns, obsolescence goals and how to manage toward them, inventory turns, fill rates, everything related to the parts department. He’ll go through the objectives for each area in about 45 minutes, with time for questions.”
2. Service Manager. “The service manager will go through every technician he has, detailing how many hours each is going to work, how productive he expects each is going to be and the type of work each is focused on. Of course, we’re looking at historical data, so we can ground truth in the plan vs. what reality would indicate. Then, the service manager would go into expense control, with discussions on things like rework expense, warranty adjustments, shop supplies -- everything that’s under that service manager’s control. He shares the objectives and how he intends to manage them.”
3. Store Manager. “From there, we’ll roll into sales. We go through everything related to the sales for that store, and to each salesman’s budget. We’ll look at things like used inventory turn goals for the store and margins. Following the sales discussion and questions, the store manager will wrap things up with his team’s ideas about how to make the store better. It could be a new service truck, an improvement or modernization to the facility, or a service truck -- whatever may be needed to achieve all these goals.  He’ll present those ideas, along with a cost estimate on what he thinks it would cost to get it done. He’ll also have the floor to talk about anything else on his mind, and the same for us about any concerns we have and discuss ideas about addressing them.”

By the last of the store location meetings, Barnett will be “pretty close” to a corporate budget ratification. “We can make those decisions at the table if the managers properly presented things, justified what they needed it and provided cost information. Occasionally, a store manager will be sent back to fill in a missing gap of information as soon as he gets home, but Barnett says the group is prone to acting in the meeting and usually he’ll have everything he’ll need to roll up a corporate budget within a week of those meetings. 

Doing 17 store meetings is grueling and they may do 3-4 per day for nearly a week, often spilling over onto a Saturday. Still, Barnett enjoys the meetings because of the interaction with managers, department managers and board members -- and a time when everyone is in the room together working on that location’s business.

Barnett says the process is a valuable tool for establishing accountability. “Again, this isn’t about someone else’s nebulous budgets being forced down on them. It’s the culmination of the store’s own plans. So, when the regional managers are at the location a month later, they aren’t going to be hearing things like ‘That was your plan, not mine.’ They know they’d better have a good answer if things get off track.”

That said, Barnett says it’s remarkable how close H&R Agri-Power has been hitting its plans and numbers. “It’s because the plan has an impact on them; they know what they’re responsible for, and they’re going to drive toward it.”

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