By Kenneth W. Keller Guest Columnist The Harvard Business Review published a fascinating article on a restaurant chain many know around the country: Outback Steakhouse. There are lessons from Outback Steakhouse for every business, beginning with the phrase used most often in television advertising: No Rules, Just Right. Outback has developed a set of core values early on called “principles and beliefs” that establish a firm foundation for the company to build upon. At first, the founders let individual stores adopt the principles as they saw the need, but when the business began to “wobble” through growth it became mandatory for every store to embrace what was found to be working at the successful stores. The lesson learned is that successful organizations have core values, and they must be embraced and enforced at every level. One of the more interesting tidbits about the company is that each of the four founders worked at menial jobs for previous employers before starting Outback. They washed dishes, bussed tables, cooked, waited tables, tended bar and swept the floor. Based on this experience, they wanted to create a business where the people at every level were heard, respected and had room for advancement. The lesson is that it never hurts the people at headquarters to work in the field, understanding the problems that people deal with daily. Unlike most service businesses with multiple locations, managers at Outback are part owners. Ignoring the fad to grant stock to employees so they would act more like owners, Outback takes a different slant. Managers become part owners by investing $25,000 of their own money to demonstrate they are serious about ownership. Signing a five-year contract is mandatory, because the founders want people as partners who are in it for the long term. Managers are granted 1,000 shares of stock, which, at the end of five years, will be worth an estimated $100,000. In terms of salary and short term bonuses, a typical manager will earn more than $10,000 a month in compensation. This figure includes 10 percent of cash flow for the restaurant they manage. The district managers, called Joint Venture Partners, must invest $50,000, but earn 10 percent of the cash flow from the units they manage. These individuals oversee between 10 and 20 units, and serve as the headquarters support at the local level. Rather than using a traditional “command and control” system so often found at multi-unit businesses, Outback wants decisions, particularly those related to human resources, addressed at the local level. The lesson is that having incentive programs is not enough, they must work for the organization and it is permissible to do what others won’t or don’t. With rare exception, Outback doesn’t do lunch. This was not an easy decision to come to, because most restaurant chains see empty tables, a vacant bar and an idle kitchen as wasted resources resources that could generate money. Outback took a second look to uncover hidden costs of doing lunch, particularly as it related to human capital. The single largest cost in operating a restaurant is the cost of labor. The cost benefit of having servers work two shifts, hiring, supervising and administering the cost of additional personnel to serve lunch did not make economic sense. Rather, Outback realized that dinner was the equivalent of “show time” in the restaurant business, when customers would come in and want to be served by energetic, enthusiastic people who were eager to serve. Contrast that with other restaurants where servers would be tired from the hassle of having to work a split shift (think hidden costs of travel time, gas, traffic) and the person serving just might not be in the best of moods. Outback also took a long look at the hidden costs that running lunch would have on managers. Managers who oversee two shifts work closer to 80 hours a week than 50 or 60, and it wouldn’t take long before this would lead to burnout. The long slide would endanger morale, impacting employee turnover and customer relations. Managers spend time teaching, and running two shifts would cut into that valuable time. The lesson is to look at your hidden costs before making key decisions. How did this company grow to over 900 locations since 1988? How did a store manager become the COO? How did the company grow over 20 percent in revenue last year? The revenue of a unit averages $3 million a year, and has people waiting in line to get in for dinner every night. The lesson for every organization is that in the end, it is all about people. The company trusts people to do the right thing, every day, regardless of the fact that they are dealing with suppliers, partners, customers, employees or the community. It is truly an American success story. Kenneth W. Keller is president of Renaissance Executive Forums of North Los Angeles County. Contact him at (818) 882-2001 or [email protected].
