May The Force Be With You

 

"Everywhere I looked," Shaich says, "there was another mess to clean up." He was frustrated, but no more so than his managers. They told him bluntly that they didn't trust the company anymore. Finally, in June 1985, Shaich did what he had to do, firing the VP of operations, putting the brake on expansion, and calling his father back to help rebuild the company. Once again, he took charge of operations -- and tried to figure out where he had gone wrong.

Things were worse than they had ever been," Shaich says, and he had a point, although on paper the company looked just fine. With 31 units from New Hampshire to Texas, it had annual revenues of $15 million and was still highly profitable. There was plenty of cash available, thanks to the recent sale of a franchise and Kane's success in raising $11.7 million from private sources. Perhaps most important, Au Bon Pain had established a clear identity for itself in the market. With a sandwich menu featuring tarragon chicken and ham with Brie, it could never be mistaken for another burger chain.

But all that was in jeopardy, Shaich realized, thanks to rising turnover, sinking morale, and operational chaos. He moved quickly to reverse the trend. Hoping to boost the managers' spirits, he raised the salaries of the capable ones and returned to the old policy of promoting from within. To aid the recruitment of crew members, he hiked starting wages 50? above those of competitors and began giving free televisions to employees who brought in new recruits. Those new people who stayed got college-scholarship assistance. And in case any managers failed to get the message, Shaich sent them all a memo telling them to holler whenever they had to work more than 55 hours a week. More than once, they did, and he dropped everything to go lend a hand.

But important as these measures were, they did not address the company's underlying problems, as Shaich was well aware. Somehow he had to regain the confidence of the people who judged the business every day: its customers. Again, he turned his attention to developing a compensation system that would keep managers focused on the all-important goal of satisfying the customer, but he found that he scarcely knew where to begin. The bonus system had been a dismal failure. What else was there? Looking for ideas, Shaich called a professor he knew at Harvard Business School, who put him in touch with a young colleague by the name of Len Schlesinger.

Schlesinger was a budding expert in the field of organizational behavior. He and Shaich met once, and again, and Schlesinger spent a few days at the company, talking with employees. Shaich liked him. "Len was somebody I could talk to about the business," he says, "and he really seemed to care." So Schlesinger was invited to join the company as a partner and executive vice-president.

For Schlesinger, accepting the offer meant giving up the likelihood of tenure at Harvard, not to mention a lucrative consulting business, but Shaich was persuasive. It was an opportunity, he said, "to build a company -- to create a system you care about." Schlesinger says that, it the end, his decision came down to one question: "Was I willing to believe my own bullshit?" The answer was yes.

His first job was to help the company come up with a new compensation system. After the "pennies from heaven" fiasco, Shaich wanted a program that would be simple to explain, easy to sell, attractive vis-a-vis competitors, and equitable within the company. It also had to encourage managers to focus on customer satisfaction.

Schlesinger began by assembling a compensation committee from among the company's managers. Together they explored the options. "People were tired of inside deals," he recalls. "So we wanted something that was very mechanistic, something we could defend." In the end, they came up with a simple system under which managers would be paid according to their level of responsibility and the sales activity of their stores.

Under the plan, every store's general manager would earn a base salary of $375 a week. Salaries would then rise as weekly volumes increased, up to $633.75 a week at the highest-volume store. "We were willing to pay more for the high-volume store," says Shaich, "because it was worth more to the company."

Managers responded enthusiastically to the new system, but -- unfortunately -- it did not accomplish what it was intended to do. Very quickly, managers figured out the fastest way to make more money was to be assigned to a higher-volume store. "The guy we wanted to be focused and caring was spending a lot of his time lobbying for a transfer," says Shaich. "What's more, we needed to move them through the system, so they usually got their way." As a result, the new system had minimal impact on the actual performance of the stores.

The situation was further aggravated by continued turnover among crew members, which was running 40% to 45% in the summer and fall of 1985, despite the fact that the company paid hourly workers a premium wage. Nothing they did succeeded in stemming the tide. "We'd run big help-wanted ads," says Shaich, "and we'd get maybe two or three replies for an opening." Often the entire corporate staff -- some 50 strong -- had to help make sandwiches and serve customers at lunchtime. And there was no end in sight.

"The pressure was really on," Shaich recalls. "I remember thinking, 'Why aren't we located in the Southwest? Why is all this happening to us?"

In October 1985, Shaich and Schlesinger took a break from the crisis to fly down to Orlando for the annual meeting of the Multi Unit Food Service Operators. Both of them felt battered and weary. They could take some solace in spending a few days with people who were struggling with similar problems, but that didn't help them forget their own. During one of the afternoon sessions, Shaich began doodling on a piece of paper, listing all the company's failings. Soon the page was filled with loops and arrows. The analysis went something like this:

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