No matter how much we wish that managers are profit maximizing machines, with the company’s bottom line at heart, they aren’t. 

My First Client

I still remember my first private sector client; a pizza shop near the University of Washington in Seattle. It was 2009 when I agreed to take over management of the failing store on a one-year contract. The recession had taken a toll on sales, and this store was hit especially hard. Of the 72 restaurants in the chain across Washington State, this store was dead last in profitability.

I came in and started evaluating the situation and whether it could be salvaged. The business was in a death spiral.

Death Spiral

The lower sales during the recession resulted in a higher costs than revenues. So, the general manager was pressured to cut costs, especially labor. Being a small store to begin with, this meant the 6 person crew often went down to 4, and sometimes down to 1 employee on the clock. With too few people to effectively operate the different stations, the employees needed to do a lot of task switching from phone, to cook, to register, to expediting, etc. All this task switching meant that they were far less efficient.

Phones would go unanswered, customers would walk out without ever being served, delivery times doubled, product quality fell dramatically, and every employee started feeling overworked, underpaid, and undervalued. Employees and customers alike stopped showing up to the store. So, with sales falling further, the manager looked for more ways to cut cost. He replaced the experienced employees that left with any warm body that applied for work. But he didn’t feel that he could afford the training for them to understand their new job. He stopped keeping people after closing to properly clean the store, because those were all zero-yield labor hours. In the end, the store was a mess and only drew any business at all from its national branding. The store wasn’t keeping up with its sales targets, its margins were abysmal, and the employee morale was terrible. It was time to consider shutting the store down for good.

New Direction

When I came in, I asked the owners to give me one year to get things straight. If I couldn’t, they would close the doors for good. I told them that there may be too much damage to repair and that they should not expect overnight results. In fact, they needed to view this as an investment, which would have some upfront costs, but would result in a good long-term return on that money. They agreed and I went to work.

For the first few months, I was working 80-hour weeks trying to get things back on track. I assessed my team, found the ones that were hard-working and wanted to be there, and I befriended them. I made sure they knew I was the team leader, but a member of the team nonetheless. I worked within the team, rather than treating them as “in the way” or as minions that needed to follow orders (the two most common bad leadership styles).

The ones that had learned bad habits, and were not willing to change, got fired. I promoted my dedicated employees and asked them to help me turn the store around. We cleaned everything. We walked through every process in the store and made sure everyone understood why we did each task. We talked about the impact on product quality that each process had. We tasted the difference.

We learned to communicate with one another on the line and with our customers. I hired new employees, after excruciating interviews, and we adopted them into our new family. We celebrated success and took pride in our work. I showed my shift managers how to control the floor, redirect resources to higher priority uses, and how to anticipate problems, setting the solution in motion before the problem ever appeared.

All of these changes, and the culture that I developed within the store dramatically improved moral, which improved customer service and product quality. It kick-started a virtuous feedback loop of better product and more customers, which allowed me to hire and train even more good people to provide that same excellent service. But I think the biggest gain I made for the business, even greater than the major employee issues I fixed, was an improvement in forecasting.

The Value of Forecasts

By devoting serious attention to the sales trends, I was able to plan for predictable changes in sales levels and be prepared for them when they came. Knowing what sales would be, I could ensure I had the right number of staff available to cover the work and I could manage my inventory much more effectively. I could also plan our prep work with better accuracy, which lead both to less frequently running out of product, and less food waste from over-prepping.

Both situations led to poor customer experiences prior to my arrival. This was largely due to reward system that was in place. Managers were incented to sell more product, even if it was low quality product. So, when the previous manager ran out of prepped product, he would take shortcuts to get product out the door.

I learned that when you rush pizza dough, and cook it before it properly rises, it turns out chewy and flat instead of that fluffy, melt-in-your-mouth texture it’s supposed to have. Managers were also incented to minimize food waste. While that sounds like a reasonable goal when you’re writing up the bonus plan at corporate, it created some poor outcomes on the front line. The previous manager would “carry-over” prepped dough from the night before that went unsold, rather than throwing it away. Although the dough is safe when its a day old, it doesn’t maintain the right texture and doesn’t cook to the correct color.

Results

Better forecasts and good leadership led to better product quality, lower food waste, better labor planning, better inventory management, better employee morale, and better customer service.

When I finished my year, my store was the second most profitable store of the 72 stores under ownership. I felt good about turning things around, saving people’s jobs, and providing a high-quality product that customers traveled miles to buy. But, I didn’t earn a bonus. Although my personal success metric was profit, the bonus structure didn’t reward my efforts. So, after I left and a new manager with different success metrics took over, it didn’t take long for things to go back to how they were before.

Lessons Learned

One thing I learned from this experience is just how important good managers, and good employees, are to a business. Without someone at the helm that can steer the ship, is willing to put in the effort to plan, is able execute the mission, and can get people to follow their lead, no business can be successful.

It’s probably easy to see the difference in leadership style from my story above. It’s probably easy to understand why one style was successful while the other was not. But, look a little deeper. The difference is not about personality, or style. It’s not even about the bonus system that was in place. The difference is in how you approach a problem. The default decision-making process is always to solve the immediate issue. A well-trained leader looks further and is willing to lose the battle to win the war.

Another lesson I learned was to beware the death spiral. When your team is faced with a challenge, know that the default approach will be the most immediate solution. If you are starving, most people’s first thought is to eat the goose, rather than cultivate the golden eggs. But, once you start down the death spiral, it is hard to recover. If you stop training your employees, start expecting more from them, and focus on cost cutting rather than your mission statement, it will lead you to place were all you have remaining are untrained, non-dedicated, warm bodies that are working for a paycheck rather than to accomplish the mission.

Conclusion

Regardless of whether you’re running a pizza shop, an investment firm, a government agency, or an oil company, success comes from effort. You must take the time to form a strategy, build the skills to forecast future outcomes, assess the situation from a perspective of quality decision-making, and then execute the plan. There’s only one way a person gains the skills to do that – training and practice. But, just like going to the gym, most people avoid the pain today even though the long-term payoff is many times greater. Change is not easy, but it often pays for itself.

How much more profits do you think are available if you had a better system of decision-making, a better culture of innovation, and a more productive team of employees?

I can tell you, its a lot.

 

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