6/17/2020 7 Essential Labor Optimization Strategies

7 Essential Labor Optimization Strategies

Published: August 2, 2016

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Last Updated on May 9, 2020 at 10:56 am

While the minimum wage debate and new overtime rulings in the United States dominate pundit panels on business talk shows
and in the pages of trade publications, the worry among restaurateurs that labor costs will climb swiftly in the coming years is
not confined to America. It’s a worldwide concern that will usher in sweeping changes for the global restaurant industry.
Wherever in the world the restaurant industry experiences growth in revenue, it will soon after see growth in labor costs.

The restaurant industry will be reshaped by several forces converging together over the next few years ranging from increases in
labor costs, the new fast casual 2.0 model, delivery, technology, supply chain pressures, changing consumption and consumer
dining behaviors, urbanization, and globalization (to name just a few).

Who’s A ected the Most?

Federal minimum wage currently sits at $7.25 an hour, the same level it’s been at since 2009. But 30 states have passed laws in
recent months mandating higher wages. In Washington state, it’s $11. In Seattle, a phased policy will bring minimum wage to
$15 by 2022. So what does this mean for workers? An August 2017 report by the National Bureau of Economic Research found
that raising minimum wage by $1 equates to a 0.43% decline in “automatable” jobs — including many in the restaurant industry.
While it might not sound like a lot, there’s no question that automation will fully transform the restaurant industry. Restaurants
with low check averages, and those with a low sales-per-employee ratio will be hit the hardest in the industry. Teenagers and
first-job seekers, and individuals with under-developed critical thinking skills will be impacted the most from the employee
perspective.

Grocery stores and restaurant chains with advanced analytics systems and tools for performance measurement and performance
management will be the least affected (and perhaps even benefitted) by the upcoming changes.

A New Kind of Hunger Games

It’s clear that labor optimization will become critical to any restaurant open today seeking to still be alive in five years. It’s not
that managing labor is any more or less important than it was in the past, it’s that the sophistication required to manage and
optimize it going forward will prove far more challenging. As survival-of-the-fittest instincts kick in for the strong to evolve or die,
they will look for every competitive edge they claw into their toolkit, including killing off the weaker of their kind that didn’t
prepare or avail themselves with the best offensive and defensive strategies.

If this all sounds like one of those futuristic game shows where friends compete for their lives until only one or a few are left
standing, that is, sadly, sort of the case. Globally, we will soon reach the point where there are so many more people desiring to
eat in restaurants than there are people willing to work in them for the wages offered, that for both factors of costs to operators
and changing demands of consumers there will be a seismic shift in restaurant economic models, and new tools and tactics will
be devised and deployed in the battle for a share of consumer stomachs.

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Before Sharpening Your Knives, Sharpen Your Pencil

Most battles are won or lost before the first bullet is ever fired. Thinking through the following items will help to plan out a
successful strategy for the next chapter in the share of stomach war.

1. Perform Capacity Analysis & Establish Par Levels

The first step in any improvement initiative is to establish baselines and conduct a gap analysis of current performance to
desired targets and comparable industry or internal benchmarks. Some questions to ask when beginning to set the baselines
include:

What are sales per employee? Per labor hour?

What are employee turnover and retention rates? At individual units? Company wide?
What are the current limits of capacity for each profit center within the restaurant? Each cost center?
After performing this analysis, what correlations and patterns were evident after this analysis?

Putting this into practice, say for a drive thru restaurant, one question would be what is the maximum number of vehicles that
each restaurant can put through in an hour? If it’s a large system and some locations have double lines and multiple service
windows but others do not, is this factored into the capacity analysis for each location, and then system wide? Or is it just
averaged across the company (as this could make a difference in the performance evaluation for each location)?

Try checking Yelp and Google reviews to find a lawyer who you feel is the best labor lawyer in California for your case type. To
take it a step further, you can call those who you feel may be the best choice. Whoever you feel the most comfortable with may
very well be your best choice.

Sound overwhelming? Don’t worry, most restaurant chains don’t currently have this data at their fingertips at the moment, either.
However, as labor costs rise, operators will be pushed to build intensely robust analytical capabilities to be able to see real-time
performance metrics for every position and station in every restaurant in their system. Yet, at present, most restaurants are still
circulating weeks-old Excel files for manual data tabulation and analysis and backward-looking printed P&L statement, rather
than finely tuned future-looking forecasts and predictive analytics tools.

2. Execute Station & Position Productivity Analysis

After establishing maximum capacity and par levels, it’s time to conduct a gap analysis to see how station- and position-level
data and performance stack up. Here are some methods to identify areas of opportunity for process improvements when
looking to optimize labor:

TASK ANALYSIS There is no point making more efficient that which shouldn’t be done at all. To identify which processes are
really necessary, performing a task analysis for each (or at least starting with the most common) process completed at a
restaurant is the first step. Then, companies can begin to engineer completely new ways of addressing these tasks to allow for
quantum leaps in performance and productivity.

LABOR ANALYSIS: How many hours of time does as company buy each year (combining both salaried and hourly
employees)? Is there any idea how much time is spent on doing what? If this labor data is collected and put into a pie chart,
how would it look? Let’s assume a restaurant has 50 employees on a FTE (full time equivalent) basis. Those 50 employees
multiplied by 50 work weeks per year and 40 hours a week comes to 100,000 man-hours per year. Many companies do not
know where all of that time is going, much less any additional granular-level detail (by position, department, and how to look
by classification of task and activity). We’ve observed the individual, manual filling of thousands of soufflé cups with different
sauces – up to 2,000 cups per day. Extrapolated out over the system, millions of cups were being filled by hand each year. The
result was both a waste of activity and inconsistent product (as the cups were filled to varying levels). The fact that this task
could be centralized, or even mechanized, could have eliminated hundreds of labor-hours each year.

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TIME & MOTION STUDIES: Scientific management systems have been around since the 1950s, but time and motion studies
are still as rare to the restaurant industry as they’ve ever been. While every guest and restaurateur knows that ticket times are
important, even on this point most restaurant operators can’t quantify with certainty their ticket times, much less produce
scientific insights into the sub-components of the processes that influence ticket times (from ordering through storage and
production). What’s partially confounding is, while this is so rare, the conversation about labor optimization and increasing
labor costs is being discussed every day. Discourse is more than complaining and conjecture, absent time and motion study
by task, position and functional area, focused on the Pareto principle pursuing those highest cost categories in descending
order.

3. Identify Tech-Enabled Productivity Enhancements

It’s is true: most of the line-level staff in limited service restaurants will be replaced by robots. Kiosks and other self-ordering
technologies have already begun to replace hourly employees (McDonald’s, Panera and Wendy’s have all implemented some
self-order tech in at least some of their stores to mitigate and offset the effects of wage inflation).

Predictive analytics technologies that help forecast customer traffic and even popular menu items by analyzing and aggregating
historical data – everything from previous order trends to the weather and traffic patterns – will enable restaurants to more
accurately plan their labor schedules and optimize time on the clock.

One consistent theme across all categories and geographies will be the pursuit and desire to shift and off-load aspects of
service – particularly to the guest using self-ordering in a manner that customers do not feel but off by, but rather attracted to
and appreciative of. When seeking means of improving labor optimization, first identify opportunities for the reduction of
repetitive tasks, then determine ways to eliminate or automate those tasks.

Ultimately, screen sizes will be chased down from digital boards, to kiosks, to tablets, to individual mobile devices, until screens
themselves disappear and re-emerge in the form of artificial intelligence using predictive analytics to anticipate customer orders
and preferences. All of these technologies are related to the guest, though equal – yet less obvious – efficiency enhancements
and gains will come from other uses that will allow employees, franchisees and other key stakeholders to serve themselves on
otherwise administratively burdensome activities and repetitive tasks.

For years there’s been discussion of the growth of “the cloud” and its role in the future. For restaurants, this goes far beyond
just cloud-based POS systems. It will enable other on-demand self-serve and real-time tools and technologies. Managers invest
time in penciling out an Excel spreadsheet schedule that’s inevitably scratched over as employees trade shifts – an
administrative time-suck that plays out next to the manager’s office in restaurants all over the world with everyone thinking
“there has to be an easier way.”

With new labor management modules and applications that have been created to address these problems, employees can now
trade schedules electronically with an automated manager approval process with permissions and restrictions set as parameters
providing control without being controlling.

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This is only one example, and this theme can be applied across much broader applications, which could result in percentage
points of reduction in inefficient use of time. This multiplied across a system with tens or hundreds of thousands of employees
will tilt the balance of power in favor of early adopters.

4. Foster Associate Engagement

There has probably never been a discussion on the subject of labor productivity that didn’t also address the critically important
consideration of Associate Engagement; and we won’t break with that important tradition here.

As cliché as it may sound to anyone looking for clever new tricks for labor productivity improvements, any productivity initiative
that doesn’t put winning the hearts and minds of employees at the top of the list of issues to address is doomed from the start.

Communicating (early and often) about the changes that will be upcoming for employees is a crucial step before implementing
the productivity initiatives. In fact, Associate Engagement can even be improved during times of change if employees are
provided with tools to provide their feedback to the changes being made, and their opinions are heard and taken into account.

5. Develop Company Culture & Career Progression

Company culture is something that needs to be actively lived in an organization, not just a mission statement and mantra that
rests in a dusty three ring binder on a shelf in the back office. Having this set of values, “norms,” and beliefs developed and
truly integrated into the company is something many companies (mistakenly) believe is an unnecessary expense, rather than an
investment that pays returns in the long term.

In addition to developing a company culture, having a clear progression plan for employees will create a sense of
“gamification” among employees. Yes, that’s a real word that means applying the same premises of games (like scoring points,
competition with others, and “winning”) to non-game activities. And who doesn’t want work to feel more like a game, so
employees are motivated to keep besting their own (and their coworkers) scores?

When considering a career progression program, companies should consider what it takes for employees to get to the next
level within the organization. Is it clear what needs to happen to get to the next position for every position that’s currently held?
And are there quantifiable targets with unbiased scoring criteria and clear progress metrics that will make it feel like employees
are playing a fun while working hard and get ahead within a company.

6. Implement Management by Objectives & Meritocracy

Management by objectives (MBO) is a philosophy developed in the 1950s. While it’s still taught in business schools and widely
and generally understood, it’s rarely implemented (or at least implemented effectively). MBO enables the creation of a
meritocracy within an organization, and the best contributors (regardless or seniority or position) are able to elevate themselves
and, likewise, the business through meaningful and tangible contributions which are quantifiable in nature (as “do your best”
objectives are as good as no goals at all).

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While time-consuming and often requiring dedicated internal and external resources to administer and manage such a program
effectively, companies that use an MBO system to set goals quarterly generate 31% greater returns from their performance
process than those who set goals annually.

We’ve seen this program, implemented effectively, have a transformative effect on client operations. For instance, we adapted
the MBO philosophy and approach, combining restaurant-specific performance metrics and operational understanding with
modernized tools for tracking, measurement and reporting and were able to improve unit revenue growth in every case by 20%
or more – in some cases doubling revenue growth out of existing locations while simultaneously improving on important
productivity metrics (sales per employee, sales per labor hour, etc.) and profitability.

It’s more than just the “if you can’t measure it, you can’t manage it” mantra. It’s also the dramatic and positive impact on
employee morale. By recognizing and lavishly rewarding top performers publicly and pointing to their demonstrable results,
other middle-performers have an example of success to emulate and a kind of peer-to-peer coaching and self-policing sets in,
whereby top performers and contributors coach and counsel underperformers to improve and, where need-be, champion their
exiting of the company. Winners don’t want to work with losers.

7. Perform Organizational (Re)Design

Organizational design – or identifying elements of work flows or systems that provide opportunities for improvement – enables
companies to focus efforts on maximizing both human processes and technological advances.

Companies should ask themselves if they would still structure their organizational chart the way it is now if they could do it all
over again. Even universities have had to reshuffle their degree programs at an accelerating rate – as, for many, by the time a
student graduates from a four-year program, half of what they have learned is outdated (or even obsoleted) by new
technologies and discoveries.

Applying this methodology to restaurants (which have historically lagged behind the times in terms of adopting technological
advancements) may lead to the realization that the organizational chart needs to be dramatically reworked.

If this sounds complicated or burdensome to think about, imagine if a caveman were transported to today. For him, even the
most trivial and taken-for-granted, every day comforts and technologies we use would likely scare him back to his cave with
shrills of horror. The pace of change is speeding up and we’re jumping generations of technology in shorter and shorter hop.

While operators aren’t caveman, five years from today they’ll look back with almost equal amazement for how dramatically
decades-old processes and procedures were reshaped or replaced by the offspring of disruptive new technologies being born
today. Naturally, for them, there would be no cave to run back to.

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