The Do’s and Don’ts of Enterprise Metrics
Wisdom + Numbers = Right Decision
What gets measured gets treasured; especially, when it is linked to things people care about such as compensation, promotions, recognition, and survival. It’s also the case that “garbage in, garbage out” is truer than ever, abetted by a combination of glitzy ready-to-use software and leaders whose deep knowledge of enterprise metrics is limited. As a result, too many leadership teams shift their focus away from measuring what is critical to what is easily quantifiable and rewarded. This certainly is the case in the restaurant industry and the critical determinant of a consistent guest experience; namely, employee turnover.
The Service Industry - An Example
One of the authors has been in and around the restaurant industry for more than forty years. In that time, he has seen very little progress made in terms of appreciating, measuring, and managing the effects of employee turnover in the service industry (retail, frontline healthcare, transportation, and restaurants/foodservice to name a few) success. One reason for this omission is pretty straight forward: employee retention is a complex phenomenon with many nuances. For example, there is controllable and uncontrollable turnover, the psychology and economics of turnover, and the challenge of accurately measuring it. A more telling reason, however, is that high employee turnover has historically been accepted within the industry as a cost of doing business that has to be endured rather than solved. In short, why manage something that is largely unmanageable and appears nowhere on a restaurant’s Profit and Loss Statement? In our view, acceptance is the cause of ignorance.
Current industry trade publications and associations are reporting hourly turnover rates of 75%, with some industry segments being higher and other segments being lower. Judging simply from the numbers, you might be inclined to conclude that high employee turnover is a characteristic of the restaurant industry. When employee turnover is measured as one employee discontinuing employment at a restaurant, that number makes sense. However, if you look at the number from a leadership perspective, it grossly understates the “stickiness” or retention of employees within the industry: Management and hourly employees tend to quit one restaurant, only to immediately go to work for another. That is, while they may leave a single restaurant in large numbers, they do not leave the industry itself. In consequence, the industry turnover rate is much lower than you might think; perhaps on the order of 20-30 percent. That number makes the restaurant industry comparable to many other industries. The industry is a reasonably stable employment platform characterized by lots of employee churn or movement for one restaurant employer to another and, thereby, creating an opportunity for the savvy leader.
The opportunity boils down to making your company a compelling or remarkable place to work. For many service companies, like restaurants, doing so may be the single largest opportunity to improve profitability. The numbers speak for themselves: studies by the National Restaurant Association, People Report, and the Center for American Progress cite similar numbers for the cost of turnover, with one single hourly turnover event (i.e., one employee quitting) costing approximately $5,900! Suppose you have a restaurant with 40 hourly employees and an annual turnover rate of 75%. That’s 30 lost employees per year at $5,900 per employee for a total profit opportunity of $177,000! However you look at it, but especially in an industry as fiercely competitive as the restaurant industry that’s not chump change. How is it that the average restaurant operator lets $177,000 walk out the door year in and year out? Good question, and one that can be answered only by turning the two reasons cited above into solutions.
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Using Our Heads
Lots of smart people work in the service sector; suggesting that money is left on the table simply because they haven’t thought much about employee turnover in terms of opportunity to improve the consistency of the guest’s experience and the bottom line. There is also a tendency among leaders to look skeptically at “academic stuff” such as theories of turnover and to muscle through operating problems. Until these tendencies are overcome, the industry will continue to be characterized by high turnover with employees simply seeking other job opportunities but staying in the same job and role. As we consider a “living wage” for all – the costs of turnover hurt companies seeking to deliver this for each of their people.
It may well be related to this tendency on the part of service industry leaders, but there is not a whole lot of actionable guidance on how to reduce management and hourly turnover by building retention. It’s no wonder then that a recent survey of hiring managers reported that their biggest headache is employee recruiting and hiring. The fact that they focused on the frontend of the equation (recruiting + hiring) rather than seeing the problem in terms of the whole enchilada of staffing (recruit + hire + retain) makes the point.
Good measurement grounded in a solid understanding of how to earn the active loyalty of employees can contribute big-time to the peace of mind of hiring managers, as well as dramatically improve the consistency of their guest-customer experience and, thereby, the bottom line. While using measures of the critical causes and effects of management and hourly turnover are core to these outcomes, it starts with a deep understanding of why it is that people (e.g., employees, guests, vendors) choose to commit to an enterprise. (We like to think of these critical stakeholders as volunteers in a restaurant’s success.) Unfortunately, topics such as good measurement and active stakeholder loyalty typically engender the same reaction from many leaders: Their eyes glaze over, they fidget and scratch, check their phones, and very soon tell us they have to be somewhere – anywhere – else. There’s a reason that I (Tom) was once told that I could effortlessly make a one-half hour talk feel like a full sixty minutes. I thought it was a pretty funny comment (and, perhaps, true), but that does not mean that these topics are not worth the attention of the audience.
Please, Stifle the Yawns
There is no mystery to building and sustaining a restaurant known for great food, service, people, and being a place people want to gather with friends and family. They are the qualities of a great restaurant, and always have been. What it takes to build a great restaurant is Stable Quality Management and being Fully Staffed with Fully Trained Employees. The first step to building these keys into the operations of a restaurant is to understand the nature and sources of employee attitudes and behavior. That’s the most important input to your being able to build on the keys that is discussed in detail elsewhere.
One of the premises that we work from is that financial health and brand strength are possible only when they incorporate a stakeholder perspective and focus on earning the active loyalty of the stakeholder, whether it is an employee, customer, investor, etc. That’s because of the power of “volunteers in success” such as employees who go out of their way to recruit, prescreen, and refer their friends and family to your restaurant, do the work that needs to be done – and then some, get to know your guests and want to take care of them, and are the kinds of people you want to have on your staff. In addition to these valued attributes, there is one more that seals the deal on greatness: guests like and want to be around them. Building these kinds of connections begins with knowing how to do it, supported by what we call good measurement.