Raising the Stakes

Bruegger's Bagels gives its cluster managers more autonomy and a percentage of profits.

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If you want more time for yourself, how about giving your managers a free hand -- and a share of the results

Say you've got an idea for a new business -- a retail or service operation with lots of locations. And say that for all of your enthusiasm, you really don't know how it should work, how to staff it, or even the range of products to sell.

Most company founders like to nail down a system at the outset. They write cookbooks telling new managers how to hire their people and report their numbers, even when to wash their floors. But there's another way to manage far-flung units. Instead of giving managers a set of cookie cutters, you rely on their ingenuity to make things work.

On the surface, letting a bunch of freewheeling managers improvise sounds risky. Won't some of them spend too much on payroll while others scrimp on maintenance? Without any performance guidelines, they might. But the founders of Bruegger's Bagel Bakery have shown that it's possible to set standards where you need them without robbing managers of the motivation to run their shows the way they want. By putting responsibility in the hands of managers and backing it up with financial incentives, you get lots of different minds working on the same problems, notes cofounder Mike Dressell. And because the managers have a stake in what they achieve, the founders can be less involved in day-to-day operations.

When Dressell and his partners, Nordahl Brue and Jim Briggs (who has since left the business), considered the idea in 1983 of launching a food business built around bagels, they knew they had to develop a decentralized approach. They were all busy in other occupations (Dressell had a construction business; Brue was an attorney; and Briggs was an accountant) and didn't have the time or knowledge to get involved in operating decisions. When they opened their bagel shops, they wanted a local manager to take charge -- to do what it took to find competent store personnel and to purchase supplies. In exchange for the headaches and late-night calls the managers would take on, they would reward them with more than salaries. They'd become partners with 20% ownership of the units they supervised (see "Sharing the Dough," page 2). To keep the individual deals tidy, each "cluster" (of up to six units) would have a cluster manager; in the context of the larger organization, it would be organized as a separate S corporation.

Once the basic format was worked out, it didn't take long to get things rolling. The first market was Albany, N.Y., and within two and a half years, cluster managers were working away in four other markets -- Cedar Rapids, Iowa; Minneapolis; Boston; and Raleigh-Durham, N.C. -- with a total of nine stores.

Dressell and Brue, headquartered in Burlington, Vt., monitored the activity as best they could. They visited their partners sporadically, and for the most part, Brue says, they liked what they saw. "Managers took lots of initiative." Not only were they developing their own techniques for managing their units and watching costs, some were inventing their own menu items -- things like pizza bagels and bagel dogs. Various clusters had different styles of bagels (some lighter, some darker) and different lines of juices and sodas. Some had paper goods with the company logo; others didn't bother.

In the early days, Brue and Dressell saw creativity as one of the hallmarks of their operating system. Unlike peers at other companies, managers did things because they made sense (and because they stood to benefit), not because somebody at headquarters had told them to. But as the company got bigger and added stores (by the end of 1988, there were 24), a question arose: had Bruegger's reached a point where some companywide standards, at least for menus and recipes, would benefit everyone? As far as Brue and Dressell were concerned, the answer was yes.

No single incident convinced them they needed to coordinate activities. In some cases, it was economics: until two years ago, for instance, the cluster managers had five different contracts with Coca Cola; if they all negotiated a single deal, they could save some money. Everyone accepted this rationale. After all, the more they saved, the more they earned. But in other cases (what went on the menu, for instance, or how the items looked) the decisions were often fuzzier matters of "consistency" and "image." Given the way things were set up, Brue and Dressell couldn't really order cluster managers to make their bagels browner or to put more carrots in the tuna salad. As long as they were performing well on a financial basis and keeping their customers happy, they couldn't order them to do anything -- not without raising larger questions about the relationship. After all, they were partners. "We had to find ways to persuade them," Dressell notes. What they came to rely on was market research.

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