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Zen and the Art of the Self-Managing Company

The owners of Great Harvest Bread Co. are building a "learning organization" -- a company that fosters innovation and almost runs itself.

Kevin Lallier

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Inc. Case Study

Call us crazy, but it looks as if the people at Great Harvest have managed to pull off what the rest of us only fantasize about. They've built an organization that practically runs itself

The case
Is there a managerially hip company today that wouldn't pronounce itself a "learning organization"? Even soloists that we know have made such a claim. Ever since the concept was first popularized by Peter Senge in The Fifth Discipline, a decade ago, countless consultants and managers have promoted it, and why not? The basic idea that an organization itself is educable is so obviously appealing that it's hard to find detractors. On the other hand, it's also hard to find people who've actually seen a learning organization in action. What would one look like? How, practically speaking, would it work? Great Harvest Bread Co., headquartered in Dillon, Mont., offers some answers.

The first step
Marian Cihacek had an idea. It came to her as she sat in a makeshift classroom with her husband, Dennis, in Dillon, Mont. The Cihaceks were being trained to run the Great Harvest Bread bakery franchise that the couple had just bought back in Omaha. Great Harvest chief operating officer Tom McMakin was talking to the group of new franchisees about marketing. He had been in the midst of describing the company's belief in "giving generously," in "winning hearts in the community," in "bread-in-mouth" promotions, when Marian Cihacek got an idea for how a bakery could practice meaningful local philanthropy and at the same time get potential new customers to taste its product. What if -- she wondered aloud -- we chose a needy group in our community, opened the bakery on a Sunday (when Great Harvests are normally closed), donated the ingredients and labor, and handed over the day's sales as charity? The community group would promote the event, help staff it, and bring attention and new people to the store. The program could be called "Baker for the Day."

"Great idea," said McMakin. "Great."

And there the idea sat. Except that Scott Creevy, an experienced franchisee who was in Dillon to help out with the training, liked the idea enough that without comment he simply went back to his 10-year-old bakery in Boulder, Colo., and tried it.

And Baker for the Day worked. Just as Cihacek had imagined it might.

That the idea worked, however, that it turned out to be good, is not what matters here. What matters -- the lesson of Great Harvest -- is in what happened to it next.

A "learning community"
What happened is that the idea traveled. But before we look at how it traveled, and why, and what that means for other organizations, ask yourself this: Is there anything more important to a business these days than making good ideas spread?

Well, maybe. There's the life-or-death need to come up with good ideas in the first place (new insights, solutions to problems, breakthroughs of all kinds that move a company forward). Understood.

But what if making sure ideas spread is the secret to making sure an organization comes up with them in the first place? Imagine capturing the brainspills of each employee and exposing them to the collectively breathed air, enabling each notion to prompt whatever reactions it will, to spark rounds of fresh thoughts by other employees, which in turn prompt fresh reactions. Thus would even the smallest ideas evolve. The weakest would get better, and the best would ultimately alter -- in Darwinian fashion -- a company's very genes. At least that's what the theorists say. They'd call a place where that occurred a "learning organization" -- an organization where innovation happens organically, irrepressibly, and without any particular genius from leaders at the top. Such a company would almost run itself (goes the hypothesis), mutating naturally and in charmed sync with the market's demands. Really, it would be a beautiful thing, a business like that. Now if only somebody could find one.

Which brings us back to Montana. It would be too large a claim to say that the Great Harvest Bread Co. is the learning organization incarnate. Its practices, taken one by one, seem too humble for that. Still, by watching a single idea -- Cihacek's Baker for the Day -- bounce like a pinball across the fragmented and loosely knit company, one begins to see how to build a self-improving, self-managing organization out of nothing more than a handful of commonsense tools and one bold philosophical commitment.

Great Harvest is a franchisor of retail bread bakeries (137 in all). As Marian and Dennis Cihacek learned in their training class several years ago, the basic business looks simple: bake and sell bread made from milled-in-the-shop Montana wheat. (Great Harvest claims that milling wheat on site just prior to baking is what makes its bread not only taste superior but also stay fresh for 12 days on a kitchen shelf.) It isn't the hard-crust, faux-European bread that's become so popular over the past decade, but the American kind -- big, soft loaves, perfect for sandwiches and toast. It's a grocery item, not the sort of thing waiters bring to candlelit dinner tables with a side of olive oil. Loaves go for $3 or so apiece, and a franchisee has to sell a lot of them to gross the $450,000 that the typical Great Harvest bakery takes in each year. (Systemwide, Great Harvest's revenues exceed $60 million. The parent company in Dillon grossed $3.5 million last year.)

The Cihaceks, like all the other new franchisees who've passed through Dillon, learned this: what Great Harvest does isn't franchising as we know it.

While most franchisors dictate everything about their franchisees' operations in order to ensure a predictable experience for customers everywhere, Great Harvest doesn't even require that its franchisees use the same bread recipes. Or paint their stores the same colors. Or use the same promotions. Instead, Great Harvest sets its franchisees free after a one-year apprenticeship to run their stores in the time-honored mom-and-pop way. Be unique, the company tells them; be yourselves, and experiment. And therein is Great Harvest's fundamental philosophical principle: the conviction that command-and-control is wrong, that the company's real product is its offer of freedom to run a bakery as the owner sees fit -- but with "handrails," as McMakin calls the help that's available if wanted. Further, in Great Harvest's view it's only by putting freedom first -- including the freedom to fail -- that an organization can fully tap the magic of human creativity.

In other words, Great Harvest says to its bakery owners, Do whatever you want. Except in one respect, which makes all the difference: Every owner in the chain is encouraged to be part of Great Harvest's "learning community." Those who join (and most have) must share information, financial results, observations, and ideas. If asked questions, they must give answers. They must keep no secrets. They must, as McMakin describes it, "let things go." The result is what academics would call an intentionally created "complex adaptive system." A learning organization.

An organization, that is to say, that responded to Marian Cihacek's idea in the way that it does to any new information: it picked it up and took it for a ride.

How ideas spread informally
Scott Creevy, at his shop in Boulder, got exactly what he wanted from Baker for the Day. He turned over more than $2,000 to the charity that his customers had chosen by ballot to help -- a rape crisis center -- at a cost to his business of about $600 in ingredients and payroll, and his bakery benefited immediately from the novel and highly positive publicity.

When he told all of that to Sally Weissman, a Great Harvest franchisee in Minneapolis he kept in touch with, she decided to try the program herself. Same happy result. Weissman in turn told the story of her good experience to Linda Hanick, owner of the Great Harvest franchise in Kansas City, prompting Hanick to try the program, too. When it worked for Hanick, she not only spread the word informally to other bakery owners, just as Creevy and Weissman had done, but also brought it to a one-step-more-routinized forum: the Great Harvest marketing group, a committee consisting of five bakery owners and Lisa Allen, who was then the company's corporate marketing director. "This is a great idea," the group told Allen. "You should do materials to support it."

Allen agreed, thereby launching another chapter in the program's journey, and we'll get to that. First, however, what can we say had happened so far? Perhaps it looked unremarkable: folks called other folks, maybe exchanged E-mail, shared the usual shoptalk about things that worked and things that didn't. But what was really going on was more rare and profound. Great Harvest had found a way -- several ways, in fact -- to provide every bakery owner with access to a collection of diverse and custom-matched mentors.

"We had an epiphany a long time ago," says McMakin. "Owners profit more from each other's experiences than from the 'wisdom' of a central world headquarters."

That epiphany happened when founders Pete and Laura Wakeman had their first informal dealings with early franchisees, in the late 1970s, and intuitively began to manage them the way Great Harvest still does -- by means of shoptalk and gossip. Today, though, the learning community they seeded has grown in both size and sophistication.

At its simplest, the Wakemans' idea is to let people "create their own enterprises but stand on the shoulders of 130 existing owners," as McMakin puts it. To that end, Great Harvest both facilitates the casual swapping of ideas and maintains formal mechanisms that steer owners to the best sources of help.

For instance, Dillon staffers provide franchisees with a top 10 list, a rundown of the 10 best-performing bakeries in 14 statistical and financial categories -- from total sales (the biggest Great Harvest shop tops $1.3 million), net profits, and payroll, to costs for ingredients, utilities, promotions, and "continuing education." Got a problem controlling labor expenses at your store? Call up the bakery owners who've got that figured out and get their advice.

The top 10 list itself is a by-product of the Dillon-compiled Best Measures report, a composite snapshot of an "average" Great Harvest income statement and statistical analysis. The report gives bakery owners a benchmark for identifying their own stores' strengths and weaknesses, as well as data from something called the Numbers Club. To join the Numbers Club, which 85% of Great Harvest owners have done, owners agree to open their books not only to the parent company in Dillon but to the other 136 bakeries in the system. Among the things they get in return is a summary of how their fellow-franchisees are doing. That update, which is ranked by the stores' total sales figures, also reveals the owners' performance in every category across the board. That means franchisees can spot other owners whose situations might be similar to theirs (same size bakery and market, say, or same level of "owner's labor") -- and who appear to have found better solutions to problems. They can identify the perfectly useful peer -- and call him or her up.

Or bakery owners can forget the phone and, with the help of Travel Match, go to see the stores they think they can learn from. Designed to encourage just such on-site, in-person mentoring, the Travel Match program pays half the expense incurred by any Great Harvest employee -- whether owner or cashier -- to go anywhere as long as half a day is spent in a Great Harvest bakery. Go to Anchorage, Alaska, where Dirk Sisson and his wife, Barbara Hood, do terrific marketing. Visit Tiffani Van Orman in Idaho Falls, Idaho, to observe how she and her husband, John, succeed despite the small size of their local economy. Wherever you go, Great Harvest pays half.

How ideas spread formally
Visits, phone calls, e-mail -- those were some of the ways Marian Cihacek's Baker for the Day idea spread from one Great Harvest shop to another. But like all the information and ideas percolating through the company, her idea traveled in other, more structured ways, too.

With Hanick and the other owners in Great Harvest's marketing group enthusiastic about the Baker for the Day program, the Dillon staff set to work producing materials -- flyers, clip art, templates for ads and banners, program how-tos, and so on -- to support it, distributing them through the Breadboard. That's what Great Harvest calls its internal Web site, which is accessible only to the company's employees.

The Breadboard site contains announcements ("Slicer for sale," "New baby in Dallas!"), discussion threads for ongoing electronic chats among owners on a wide variety of subjects (new recipes, notes on maintaining particular ovens, tips for Halloween promotions), articles (external press coverage, stories written by McMakin or other staffers, research reports by the Dillon crew or bakery owners about specific concerns or opportunities), and archives that enable owners to pull up ideas, advice, and information addressing any specific concern they're dealing with. Owners can use the archives, for instance, to find the resources to help them stage Baker for the Day, under the "Winning Hearts" heading (Great Harvest's label for marketing).

Dillon tracks the site's traffic to learn what bakery owners value most. "Right now the marketing area gets by far the most hits," says McMakin. "People love the clip art and other materials for making posters and flyers to support a product or campaign." But, he adds, it took some work to get owners to start using the Breadboard in the first place. "For a while we suspended the hard-copy newsletter version of the Breadboard so that people would break old habits and start going online," he says. The paper counterpart is soon to be reinstated.

An even more formal step is using the idea-spreading mechanism called Case Studies, a new initiative. Bakery owners or employees study a successful practice or a problem and then write up their findings using anecdotes and analyses, which are published in the Breadboard. Had Case Studies been around when Baker for the Day was evolving, the program might have become its own case study or part of a larger one covering programs for community giving.

This past summer a major study was done on store design and merchandising -- an attempt to bring together the best of what's been learned throughout the system and to get recommendations from professional designers about fresh ways to boost sales and profits through improved visual presentation. Upcoming studies will aim to learn not just from Great Harvest's own experiences but from looking at relevant goings-on outside the company, too. One study will take a bakery owner and a Dillon employee to Australia to learn from the well-developed fresh-bread retailing industry there; another will involve a trip to Denmark to research a new, more efficient type of oven.

So what happened to Baker for the Day? It traveled into the bloodstream of the entire Great Harvest system, pumped along by the Breadboard and all the company's other methods of capturing and communicating ideas -- printed newsletters, personal visit to bakeries by field reps from Dillon, and gatherings of owners at annual Great Harvest conferences and training sessions. Along the way it was steadily refined, as it continues to be. Successive bakery owners figured out nuances about how to select charity partners, what kinds of publicity draw the most attention, how best to involve the bakery's workforce, and more. A template is being developed, and a cadre of experienced guides can help newcomers understand it.

Of course, this being Great Harvest with all its libertarian zeal, franchisees are free to use the template or not -- or to use any part of it and deviate from there -- just as they choose. "The currency of innovation is use," says McMakin. "If a new idea's good, it gets adopted fast." If it's bad, it doesn't.

In this free marketplace of ideas, Marian Cihacek's little notion has passed the test. This year 40% of Great Harvest's 137 franchisees are planning Baker for the Day promotions of their own.

Michael Hopkins is executive editor of Inc.

To learn more about Great Harvest, read a Q&A with Pete Wakeman on managing to live well while managing an entrepreneurial company. You can also download a copy of Great Harvest's unusual franchise agreement and read inc.com's guide to franchising as a growth strategy.


The Company

Great Harvest Bread Co., headquartered in Dillon, Mont.

Business: Franchisor of retail bread bakeries that make soft-crust bread from Montana whole wheat that's freshly milled in each bakery

Size: 137 franchised bakeries; franchisor has 28 employees

Financial Summary:

  • Sales systemwide: $60 million
  • Average sales of Great Harvest bakeries: $450,000
  • Franchisor sales (from royalties and new-franchise fees): $3.5 million
  • Average profits of bakeries: 17% before taxes and owner's compensation
  • Franchisor's profits: 19% before taxes

Management: Pete and Laura Wakeman, 48 and 47, respectively, cofounders and copresidents; Tom McMakin, 39, chief operating officer

Founded: 1976

First Franchise Sold: 1978

Capitalization: 97% owned by the Wakeman family, 3% by the management team (with no outside equity investments)

Strategy: Sacrifice the advantages of franchise uniformity in order to offer people the chance to run their own businesses, bolstered by coaching and ideas from the Great Harvest "learning community"

Competition:

  • For customers: grocery-store bakeries, independent bread shops, and bagel shops, which proliferated in the 1990s
  • For potential franchisees: a handful of smaller whole-wheat-bakery franchises

The Founders

A long-running play
In 1975, Pete and Laura Wakeman -- newly married and fresh out of Cornell University, where they'd sold homemade bread to pay for their tuition -- spent a final summer vacation walking from Yellowstone National Park to Glacier National Park, which is to say the entire north-south length of Montana. They never left.

Not permanently, anyway. They moved to Great Falls, found work (Laura as a nutritionist, Pete driving wheat combines), and in early 1976 turned a failing bakery into the first Great Harvest. It worked well enough that by 1978 they had begun selling franchises to people who asked for them unsolicited.

They did leave Montana temporarily -- and regularly. From the start, the couple have typically spent three months away from the business every year to travel and pursue other interests. They consider the habit a secret to their success. "After 24 years, we're still fresh -- we still love our business," says Laura Wakeman. "How many owners can say that?"

And the sheer longevity of their stewardship may be secret #2, made possible only because they've prevented the company from being all consuming. "After you've been in a business a long time," says Pete, "sometimes you discover mastery you didn't know you had." The secret is "staying with one thing, staying committed. That way you figure things out without even realizing that that's what you're doing. It just accumulates.

"And then a day comes along when for a moment an amazing thing happens," he says quietly. "You feel like you can do magic. Sort of a business magic. It doesn't last, but you realize you'd never have gotten there at all if you hadn't stayed committed so long."

In effect, all the structures now in place to ensure that franchisees learn from one another are outgrowths of the Wakemans' personal need to share not only their own growing expertise but also the mastery they saw in others. From the beginning, they showed franchisees the financials from their Great Falls bakery to provide early benchmarks, and after visiting bakeries in the system, they wrote letters to the rest of the franchisees describing what they'd seen and learned. Out of that sensibility and those simple practices, their idea of a learning community was born.


Best Practices

Balancing work and life
"We believe strongly that a business is in service to our lives, not the other way around," says COO Tom McMakin. The Wakemans established that philosophy from the start and reaffirm it by their own annual travel and periods of reduced weekly hours. In Great Harvest's headquarters, all employees are salaried but are prohibited from working more than 40 hours a week. "We ask people to work hard when they're here," says Laura Wakeman, "but hard is not the same as long."

"Sweet spots"
"We think there are sweet spots in business," says McMakin, "collectively-arrived-at practices that you can usually put a number on and that keep everything in a kind of running harmony." He names three: the thickness of the bread slices given away as samples to everyone who walks into a Great Harvest bakery (one inch, not more or less), the number of hours employees and bakery owners work (about 40), and the pretax net margins a healthy income statement should reveal (17% or 18%; anything lower or higher could signal problems).

Picking great harvest franchisees
By year-end, Great Harvest will have received more than 5,000 inquiries about buying a franchise and more than 150 formal applications for ownership. The company will sell franchises to only 5 or 6.

"We're a community," McMakin says. "Of course, we want people who we think can run a business, but maybe more than that we want people who will make our learning community stronger, who'll bring new skills that the rest of us don't have, and who'll be eager to share them. But most of all we want people we really, really want to work with, who more than anything else are generous. We want people who are nice."


Please e-mail your comments to editors@inc.com.




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