May The Force Be With You

Tweet

But Shaich was not interested in building just another fast-food business. "I wanted to create a truly better food-service company," he says. Good food -- "food you wanted to eat" -- was a given, as was making money. He dreamed of a company built around a general, and passionate, concern for its customers. That, he realized, demanded a certain type of employee, "people who did things not because the boss was looking but because they really cared." In order to attract those people, he knew he had to create a different type of environment. "We didn't want to accept the low standards of the rest of the food industry," he says. "We wanted to show the big guys -- Pepsi and McDonald's and Sara Lee -- that the conventional ways of treating people were not the only ways. We felt we could to better . . . . I wanted an organization where I'd want to work."

With that goal in mind, Shaich began to tinker with the compensation system, setting up a program in which managers could earn monthly bonuses for generating sales above a budgeted level, provided the store stayed within bounds on its food and labor costs. It was an idea he borrowed from the famous businessschool case study of Lincoln Electric Co., and it seemed like a surefire method of pointing managers in the right direction, thereby reducing the pressures on himself and the rest of the management system as the company grew.

And grow the company did between 1982 and 1984. As stores increased their volume, Au Bon Pain began adding units. Most weeks, Shaich worked 90 hours, spending the bulk of it in the stores, devising systems to handle the growth. Everywhere he went, he carried a message to employees -- that growth, if properly managed, would create opportunities for those who took care of customers. "I did everything I could to make people feel that they wanted to be here," he says.

But growth also put strains on the company, strains that promised to get worse with time. For one thing, the Massachusetts labor market was getting tighter and tighter, making it more difficult to find new managers and crew. That situation created opportunities for employees, but dangers for the company. "We were promoting people left and right," says Shaich, "sometimes before they were ready."

By the beginning of 1984, the company had 14 stores, generating annual revenues of more than $6 million, but the company's management resources were stretched perilously thin. The game plan, moreover, called for opening 10 to 15 new units in the next year and, at the same time, moving into the lunch market with a new line of soups and sandwiches. Shaich himself found that he no longer had time to give store managers the support they expected. So in April he brought in a regional manager from McDonald's Corp. as the vice-president of operations. "We wanted to give the stores the best leadership we could find," Shaich says.

It soon became apparent, however, that the addition of another top manager was not going to solve all the problems, many of which seemed to be related to the compensation plan Shaich had installed so optimistically in 1982. It wasn't working. In the atmosphere of constant change and growth, the company could not come up with meaningful budget targets for managers. Beyond that, the systems for recording operating results were overloaded, and people were constantly being moved before their actual numbers came in. As a result, the compensation plan had lost its integrity. Managers realized that their bonuses really depended not on their performance, but on Shaich's perception of it. Not that he was stingy. In the absence of clear guidelines, he tended to give something to everybody, but on such a discretionary basis that the system became known as "pennies from heaven."

To make matters worse, the new vice-president was busily destroying whatever lingering credibility the compensation system had. To fill the slots in the new stores, he hired new managers, many of them from McDonald's, at salaries $6,000 or $7,000 above those of the old managers. The latter were understandably furious, and they told Shaich so; a few even left. But he didn't intervene. "I felt I needed to give the guy the freedom to do his job." Unfortunately, it soon became clear that the guy wasn't doing his job very well, at least when it came to providing support for store managers, whose morale continued to plummet. "He managed downward," says Shaich. "He expected their loyalty but didn't feel he had to earn it. And he showed no interest in taking care of them as people."

By the end of 1984, Shaich began to have the feeling that the company was coming apart at the seams. Customer complaints were increasing, and the turnover problem was growing. Hard as it was to recruit new employees, the average stay had dwindled from one year to a mere seven months. The company also lacked adequate operating standards -- governing, say, where to keep the lettuce for sandwiches. Per-unit operating profits, meanwhile, were deteriorating badly, even as sales continued to rise, and some of the wrost performers were the new managers brought in by the vice-president of operations.

 PREV  1 | 2 | 3 | 4 | 5 | 6  NEXT