Just as Hall controls costs by partnering with suppliers, Kathy Miller, the Primrose School franchisee in North Carolina, is building partnerships with her 25 employees. She's laying the groundwork for open-book management.
At monthly staff meetings she shares financial information in hopes of instilling a cost-conscious outlook. "I've made it clear," she says, "that we have finite dollars and competing choices to make. When they talk about overtime or absenteeism, I say, 'Look, your payroll is running me $12,000 every two weeks.' When they want equipment that costs, say, $1,800, I ask if it's smarter to spend the money that way or on an incentive plan for well-day benefits. Eventually, they start to comprehend how a business works. It's not that they're ignorant, it's just that they've never been exposed to this kind of thing before."
Miller's biggest problems are teacher absenteeism and turnover. "I'm setting goals for them," she says, "for example, no more than 15% absenteeism for the quarter. That lets them participate in driving down overtime costs." She is working on providing weekly progress reports and plans to pay quarterly bonuses to those who meet the goals.
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People Management
Employee turnover, it's no secret, is notoriously high in retail in general and fast food in particular. But Pete Harman, whose company owns 265 KFC outlets, claims to have found a solution.
To attract -- and keep -- good managers, Harman has designed a program whereby individuals can own up to 30% of the stores they manage. Assistant managers can own up to 10%. Typically, the 30% stake is worth at least $40,000, based on the store's assets -- cash, retained earnings, the physical plant. "We help finance that for them," says Harman Management Corp. vice-chairman Jackie Trujillo. "We take them to the bank and guarantee a loan to buy the stock. They receive a salary and a percentage of the profits, and their equity stake grows as they grow the business. If they retire or leave, they have to sell the stock back to the corporation."
As a result, management turnover in the Harman group is 12%, one of the lowest rates in the industry, according to Trujillo. Employee turnover there is 110%, but 300% is common in fast food.
Franchisee Tom Budinick, who co-owns six Auntie Anne's soft-pretzel stores in midwestern malls, faced a similar problem. "A couple of my places are in wealthy suburbs, and the kids don't need to work," he says. "So unless you make it a satisfying environment, they won't stick around."
Employee surveys show that what people value most highly are recognition for a job well done and a clear view of their standing in the company, Budinick says, while compensation ranks third. So all his employees, even high schoolers making the minimum wage, get performance reviews every 90 days. Each review brings an opportunity for a raise -- a small one, but enough so that employees feel appreciated. To help cover the resulting higher operating costs, Budinick raised his prices from $1.39 a pretzel to $1.49. He says he met precious little resistance from consumers.
Not mind-blowing stuff, but it works. "Turnover in fast food runs in the hundreds of percentage points, but ours is more like 50%," says Budinick, who studied personnel issues in a previous incarnation as an executive headhunter. "It seems like we're reviewing a kid every time we turn around, but it creates an incentive for exceptional customer service." That, in turn, gives franchisee Budinick just the edge he needs in an environment where competition -- both franchised and independent -- grows fiercer every day.
"It's a whole new world out there," reflects Bill Hall, the Dairy Queen franchisee. "You literally go from year to year not knowing which direction your company will move in. The franchisor makes every effort to help you, because that helps them. But ultimately, success or failure rests on your shoulders. That's the challenge, and if you can meet it with some imagination, you'll be fine."
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Research assistance for this article was provided by Karen E. Carney.
SMART FRANCHISORS
RE/MAX International, Englewood, Colo.
Boosting Productivity Through Technology
RE/MAX International's shrewd use of technology enables its 2,500 franchisees to focus on what really matters: watching TV.
Not that RE/MAX's real estate agents are glued to Coach reruns all day. They may be watching taped presentations given by celebrity motivators like General H. Norman Schwarzkopf or management guru Tom Peters. Or they could be taking in a Harvard Business School course on quality. Such fare is part of the six hours of daily programming that RE/MAX beams out to its franchisees over its own satellite television network, which features two-way interactive videoconferences enabling employees at 1,100 outposts to call in (À la Donahue) and ask questions of a panel of real estate experts or top salespeople back at the studio. "The best people deserve the best tools," says Daryl Jesperson, executive vice-president.
Those technological tools -- including the satellite hookup and a recently opened site on the Internet -- are all aimed at enabling franchisees to "handle more properties," Jesperson says. Back in 1992 RE/MAX embarked on a multimillion-dollar technological buildup prompted by the simple fact that "costs were going up and commissions weren't," Jesperson explains. In 1993 the company introduced electronic mail and a private bulletin board on CompuServe, which allows franchisees in more than 1,700 offices to trade marketing tips and referrals, post classified ads, and advertise.
Last year, in an effort to boost referrals, the company unveiled a CD-ROM that included a roster of all its agents. Franchisees can now download personal information about their peers -- including a color photo. "You don't get paid on a referral if you hook up a military vet with an ex-acid-dropping hippie," notes Jesperson. Agents' refer-ral income has risen "markedly," he claims.
