McOpCo of AlbanyOperations Company Executive Summary

Prepared by Mike FeaganJuly 1997

Updated March 1999

Organization

The new McOpCo of Albany is different both in the philosophy of the organizations and the behaviors we needed to adopt. We have aligned our organization to be responsive to the needs of our restaurants. The McOpCo Operator is a “hands on” position, responsible for creating a clear focus and accountable for the operational and financial performance of the market. It is the chief planner and organizer for the “operating company.” It clearly defines the different roles and responsibilities of all departments that support McOpCo and holds them accountable for results. This philosophy was adopted because:

“The definition of insanity is doing things the same way and expecting different results.”

-Mike Quinlan

In January 1996 the Albany McOpCo began to focus on systems and management structure to build sales and transactions, improve profitability, and increase customer satisfaction. In order to do this, we had to look for ways to improve the day to day operations of our restaurants.

The call to action was simple:

In September of 1995 crew turnover was 184%, with management turnover at 32%. Management staffing per store consisted of 3.30 salaried managers and an average of 22 swing for a 14 store market. In June of 1995, total employee satisfaction for the market was no better than 63% ,with crew satisfaction a discouraging 55%.

The profit picture was also troublesome at year end 1995 and during the first half of 1996. The acquisition of a mall location in July 1994 and another restaurant acquisition in December 1994 that had high investment cost and high rent caused ROI to fall from 15.74% in June of 1995 to 12.52% in June of 1996, a decline of 3.22%.

Food cost opportunity started to show minor improvement, though, from a 1.10% opportunity in June 1995 to a .87% food opportunity in June 1996; however, one would argue that with an average food cost opportunity of $5,262 per restaurant through June of 1996, there was much more work to be done.

Customer satisfaction in June of 1995 was at 81%, below the licensee average of 85%. In December the score of 82% showed little or no change and the same was true by June of 1996 when customer satisfaction was slightly higher at 85%.

The market structure, at that time, had a ratio of 6 to 7 restaurants per supervisor.

It was this type of performance trend that convinced us that we had to be innovative.

“We see every problem as a nail if our only tool is a hammer.”

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We knew that the hammer was not going to get us what we wanted. Both managers and supervisors were working hard. The problem seemed to be that our restaurant managers were time, and organizational skills were, for the most part, very weak. It was clear that we needed to “GET BACK TO THE BASICS.”

Once this priority was clear, we started to assign roles and responsibilities within the restaurant and structure the McOpCo organization the way the “best practice” operators do. Our core problem was that empowerment had lead to abandonment. Our organizational structure was not the same from restaurant to restaurant or from supervisor to supervisor. In most cases, we did not have the right manager in the right spot doing the right tasks at the right time. We needed to define the systems, along with a detailed schedule of responsibilities for the individual managers we knew could provide the restaurant with the greatest value.

It was time to change. We needed a better plan.

We needed to have structure that could help everyone in the restaurant to stay focused. McOpCo had to become an “operating company” within the Albany Region, where clear roles and responsibilities were established at all levels.

The goal was simple -- outstanding execution of QSC at the restaurant level while building sales and improving profits. This had to be accomplished by having the Operations Manager and Area Supervisors working shoulder-to-shoulder on restaurant systems in an organized structure to enable restaurant managers to accomplish more through better planning.

As an “operating company” McOpCo is given permission to find the best ways to run the business. One of the first changes was to have the Operations Manager or McOpCo Operator report directly to the Regional Manager. This move allowed the focus to be narrowed and responsibilities more clearly defined and committed to.

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Business Planning

Like any successful business it was necessary to develop an annual business plan with targets. Targets were set for each restaurant and supervisors patch in the areas of:

Operational Standards Market Share Customer Satisfaction Employee Satisfaction Financial & Cash Flow Reinvestments Community Involvement

This process established one of the key elements of any operations company: maintaining Restaurant Managers’ goals and objectives. The purpose here was to tie the management performance review process into the business plan process. Therefore, we needed to accurately measure the management performance of each restaurant manager. To do this effectively, all restaurants had to have an individual business plan with measurable results in each of the areas listed above.

We realized that checking progress was one of the weakest areas in our organization. To get the desired results from individual restaurant plans, we would have to develop an ongoing process of checking for results.

When we looked at why most of our managers were underperforming the common theme was the lack of consistency. From restaurant to restaurant and supervisor to supervisor, different ways of doing business were not unusual.

We clearly had to do things differently. There had to be more manager structure and accountabilities that were tied to responsibilities. Using and applying concepts from best practices and proven management activities, we narrowed the focus to effective routines.

The decision was made to concentrate our efforts in establishing the necessary structure and routines that could ensure success in our goal of growing market share, improving operational standards, bettering customer and employee satisfaction, and maximizing profitability.

“A good plan is like a road map: it shows the final destination and usually marks the best way to get there....”

- H. Stanley Judd

Unlike other managers in the system, our managers were caught up in trying to handle too many tasks themselves. There seemed little time to accomplish all the duties and responsibilities that came along with being a McOpCo Restaurant Manager. It was now up to the Operations Manager and Supervisors to clearly define their role. You may have heard the saying “ you can’t eat an elephant in one bite.” That applies to the restaurant managers. We need to teach

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them how to break down this big elephant called a “McDonald’s Restaurant” into bite-size pieces.

From the beginning we applied the quality management principles of continuous improvement and seeking input from all levels.

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Zone Management

The first step was to divide the restaurant into “zones” or areas in which restaurant managers place assistants and/or floor supervisors in charge of. This concept we termed Zone Management. The plan is quite simple. Take the restaurant and make four zones out of it: front counter zone, drive-thru zone, grill zone and a maintenance zone. Looking at the zones, we determined that the manager in charge of these areas needed to accomplish some basic tasks. They should complete the preventative maintenance in the zone. They should be in charge of cleanliness and organization of that area. The initial accountabilities for these zones were what we termed the “ 80, 90, 80 rule” which simply meant that during a month, each zone manager must achieve a minimum of 80% completion of PM, 90% completion of SOC’s on team members and an 80% cleanliness score on an announced walk-through.

Finally, they supervised the crew people that worked in that area. We established a functional team within each zone. This means that the zone manager would have a team they could work with to help complete the required task within the zone. The zone manager was responsible for measuring the performance on each of their team members. That means the zone manager would do monthly SOC’s that would be tied to performance reviews for individuals on their teams.

Later we would learn how critical a step this was. By dividing the restaurant into zones we experienced several advantages:

PM finally was getting done consistently SOC’s on crew were improving performance Managers felt ownership within the restaurant Competition began between zone teams in the restaurant Restaurant managers found out which manager could get things done There was finally some structure they could easily follow

We started to see some immediate success with the manager that took this concept and ran with it. Others were still trying to balance all their activities and zone management seemed to be another task add to their plate. We needed to help them.

“There is always a better way...our challenge is to find it.”

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Management Scheduling and Planning

We adopted a standard McOpCo managers’ schedule and plan. The intent was to provide the managers with an organized scheduling process that would furnish them with a better structure in which to execute FAF by using the G.A.M.E. model. This schedule was designed to teach the managers how to stay organized through effective planning. The main point of this system was to standardize and establish consistent “due dates” for programs throughout the market. Routine programs such as QCR’s, crew schedules, crew staffing, managers’ meetings, etc. all were planned for in the weekly management schedule. The schedule targeted two areas: First, it put the right manager in the right spot, doing the right things, at the right time; second, it balanced the needs of the business with the managers’ quality of life issues.

Standard Management Schedule for Salaried Albany McOpCo Managers

Week 1 Sun Mon Tues Wed Thur Fri SatRestaurant Manager -- 8-6 8-6 -- 3-cl 11-8 7-5

1st (Food) 5-2 11-8 3-cl 11-8 -- 4-cl --

2nd (People) -- 3-cl 11-8 -- 5-2 5-2 4-cl

2nd/Swing (Retention) 3-cl -- 7-5 3-cl 11-8 -- 9-6

Week 2 Sun Mon Tues Wed Thur Fri SatRestaurant Manager 5-2 8-6 8-6 -- 3-cl 11-8 --

1st (Food) -- -- 4-cl 11-8 8-6 4-cl 12-8

2nd (People) 3-cl 3-cl 11-8 -- 5-2 -- 4-cl

2nd/Swing (Retention) -- 10-7 7-5 3-cl -- 5-1 7-5

Week 3 Sun Mon Tues Wed Thur Fri SatRestaurant Manager -- 8-6 8-6 -- 3-cl 11-8 7-5

1st (Food) 5-2 -- 3-cl 11-8 -- 4-cl 12-8

2nd (People) -- 3-cl 11-8 5-2 5-2 9-6 --

2nd/Swing (Retention) 3-cl -- 7-5 3-cl 11-8 -- 4-cl

Week 4 Sun Mon Tues Wed Thur Fri SatRestaurant Manager -- 8-6 8-6 -- 3-cl 11-8 7-5

1st (Food) 5-2 -- 3-cl 11-8 -- 4-cl 12-8

2nd (People) -- 3-cl 11-8 5-2 5-2 -- 4-cl

2nd/Swing (Retention) 3-cl -- 7-5 3-cl 11-8 5-1 --

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The advantages of this type of schedule were obvious from the beginning. It accomplished a number of objectives. The structure of the schedule allowed us as an “operations company,” to set guidelines on all procedures to achieve results. For example, it was possible for us to state that we wanted the First Assistant to be the food cost manager. This then allowed us to have all activities that were related to food fall under one person. This became a key finding. The more one person was exclusively involved with the entire process, the more accountability there was. The purpose here was to use the measurement of Food Opportunity to evaluate the person in charge of food cost. They had to be in control of the ordering process, Grill Zone (including cabinet level charts, raw waste, etc.), weekly stats and action plans....in other words, everything that had to do with food was their responsibility. And what happened was this:

This discovery led to putting each salaried manager in charge of an entire process attached to a zone. The end result was a manager schedule that gave each one of these zone managers the time to execute. We then could give zone managers other responsibilities -- responsibilities that directly affected the restaurant and their zone. We came up with names that described these responsibilities. We termed them “Food Managers,” “People Managers” and “Retention Managers” and gave them the entire process to manage within the restaurant. By doing this we now had complete accountability on all systems and all we needed to do was give the time and the day on the management schedule in which we wanted these activities completed.

Now we had an organized way of developing managers from the beginning using targets and zones. What these managers were learning was how to manage by objectives. For example, we could take the newest manager and assign the front counter zone. Along with that we could add the responsibility of the “Retention Manager.” As they progressed through their development we would add the Drive-Thru Zone and the title of “People Manager, .” then they would move on to the grill zone and the responsibilities of “Food Cost Manager.” Under this structure each zone has a requirement for performance and allows the restaurant manager to evaluate the individual’s ability to be organized, execute and motivate. There now was an organized approach to management development with a way we could better evaluate the success of an

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Food Cost Controllable

4.53

4.764.85

4.75

4.03

3.823.75

4

4.25

4.5

4.75

5

1993 1994 1995 1996 1997 1998

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individual. This clearly put the burden of responsibility on a single manager to use the resources within their zone while staying organized and managing their time wisely.

With this structured method of management scheduling, we needed to check progress, or the results we were looking at seemed to be borderline at best.

“Concentrate on the essentials...we will be accomplishing the greatest results, with the effort expended.”

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Management Development Day

Even though zone management was introduced into the market, we needed a way or a day in which the managers could follow up not only this process but other areas too. We decided that Tuesday would be that day. We called this Development Day.

A sample schedule for managers and the tasks they do may look something like this:

7 8 9 10 11 12 1 2 3 4 5 6 78-6 Rest. Mgr. 1 on 1 1 on 1 MOC Completion Team 1 on 1

7-4 Asst. MDP 1 on 1 MOC Completion Meeting

9-6 Asst. MDP 1 on 1

3-Close Asst. MDP 1 on 1

Once the schedule was established the need for consistency became a priority. It was obvious that each manager had their own way of looking at zones. So we saw the need to develop the standard “walk through” information to be used by all restaurants. Supervisors then set their schedules to be at each of the restaurants to actually introduce the standard “walk-thru” information to each management team. By doing this, we benchmarked each of the zones and helped establish the standard.

The second part of our plan is to have the supervisor attend these development days every 4 to 6 weeks as a “Communication Day.” This became the second key finding. To have zone management keep going, the leadership of the organization must drive the process. But, once the system of zone management was in place and the goals for the zones were established, we found, like many managers have..

“People with goals succeed because they know where they’re going.”-Earl Nightingale

Once we saw the success of this structured process, it became very clear that this was the type of organization and planning the managers in our restaurants were looking for. It was up to us as the leadership to develop a planning system that would be consistent throughout the market. Every restaurant manager in the organization would be doing the same things on the same day. We would have to plan the activities and develop routines and processes to improve the results of the market while “narrowing the focus.” So we did.

“All things are difficult before they become easy.”- Thomas Fuller

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Narrowing the Focus

From the beginning, change was a gradual process and at times a little unsettling. It is up to the leadership of an “operating company” to continuously communicate what the problems are, why they are happening, what will work better, and to put a plan into place to measure the results. This approach to problem solving seemed to work. The best example was the approach we took to building the peak in drive-thru.

It became obvious that our drive-thrus were under performing, mainly at the peak periods, which was in most restaurants 12-1 pm. We realized that this represented more that 15% of our business and in many cases, it was one of our poorest performing hours according to TTL’s. Utilizing the G.A.M.E. model, we have been able to drive sales and outperform the licensees in the past eighteen months.

The process seemed to work very well and we need to apply it to other aspects of the business. It became clear that if the leadership took an active role in planning and organizing the task or system that they wanted accomplished, the managers would deliver. Here are just a few examples:

In the area of Customer Satisfaction:

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Customer Satisfaction Scores

7578

82 8285

91 92

65707580859095

Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98

% S

atis

fied

Also, in employee satisfaction:

Employee Satisfaction Trend Analysis

63

69

63

68

86

79

92

60

65

70

75

80

85

90

95

Jun-95 Dec-95 Jun-96 Dec-96 Jun-97 Dec-97 Dec-98

% S

atis

fied

The sudden upturn in employee and customer satisfaction began when the market went to a peak period drive-thru focus. We began running incentives in the market from 12-1 pm every Friday. The contest was to see who could put the most cars through their drive-thru. Crew and management began immediately working together. The focus was the number of cars they put through, and prizes were awarded to the store with the highest car count. Attitudes changed, crew and managers wanted more cars and complained when they ran out. They began to look for ways to draw more cars to the drive-thru. The competition was on. In some restaurants their focus on cars during the peaks was the first real signs of teamwork.

“Teamwork is the fuel that allows common people to attain uncommon results.”

After running incentives and posting results and applying the right mix of recognition and rewards, we found restaurants knew they needed “three more cars” to break a restaurant or market record. This is the attitude that grows TC’s and captures market share within a restaurant and market but it can’t be achieved if not adequately staffed.

During the peak periods there is no substitute for staffing!

“It takes months to find satisfied customers....and only minutes in the Drive-Thru to lose one.”

The key finding was that making the drive-thru faster and focusing on the peaks was strategic to improving customer satisfaction and improving overall sales performance in the market. Nothing beats speed, yet if we don’t have the people, speed is not an objective.

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Retention first....then Staffing

To meet our objectives in the restaurant it’s obvious that attracting and maintaining employees is vital to success. It has always been our desire to find ways to retain employees. We have believed that we normally do not have a staffing issue, we usually have a retention problem and to fix it we must improve the overall approach towards all our employees.

From the Director of McOpCo to the newest swing manager, the responsibility for retaining employees needs to be understood as one of the top priorities in improving FAF. It must be grasped that along with the objectives for staffing the restaurant, action must be taken to encourage both crew and management retention.

Lowering turnover is a key to success. In some cases that means you have to do what you can with what you have in the situation you are in. In lowering turnover, managers should have the courage to hang in there after others may have let go. It means having qualified floor managers in position doing the right things, which requires time and commitment on the schedule. It is for this very reason that every shift running manager, in our organization, must pass a shift verification conducted by the Supervisor and Operations Manager. All certified swings that receive company benefits must attend BOC, complete their BOC post class action plan and go through the verification process, before they receive a management uniform or are left in the restaurant alone. As an “operating company” there must be an emphasis placed on having a qualified manager running the business, and in our opinion, it costs too much in lost sales and crew to have poorly trained or ineffective floor managers in charge.

Nothing in staffing and retention seems to come true unless the management team in the restaurant have the desire to pursue it. It must be the responsibility of the leadership of an “operating company” to hold themselves accountable for helping each manager achieve staffing and retention goals through training, resources, or positive recognition for positive performance. They must develop the system for new hire training and verification that is used by every restaurant.

We use a four-day process of on-the-job evaluation training, with the verification being done by the Restaurant Manager. If the restaurant manager, at the end of the process, finds that the individual does not meet the minimum criteria for hiring, they do not get hired. In addition to the monthly follow-up SOC’s on all team zone members, we include comments on dependability, appearance, job fit, and teamwork. The employee is given an overall rating and two areas to work on in order to get to the next performance level. These monthly SOC’s now become part of the crew’s six month review.

Because of our persistence in making zone management work, along with having a market wide system for hiring and training, our turnover number over the years have improved dramatically.

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0-90 Day Crew Turnover Trend Analysis

78

65

58 60

49

393635

45

55

65

75

85

1992 1993 1994 1995 1996 1997 1998

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Crew Turnover Trend Analysis

203

177165

159

1029290

110

130

150

170

190

210

Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98

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Management Turnover

5148

3432

27

23

28

20

25

30

35

40

45

50

55

1992 1993 1994 1995 1996 1997 1998

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Improving The Margins

With the idea of adding crew to the peak periods and more emphasis on development than ever before, the concern was, how do you do this profitably? It came to our attention that if we could reallocate fixed hours to service or variable hours, we could balance customer satisfaction with profitability. When we started, the average restaurant was using around 410 to 420 fixed hours a week. We asked our managers and supervisors to come up with a plan to reduce these hours without impacting customer satisfaction. By improving routines being better organized and utilizing managers’ schedules, and the use of established routines for the use of fixed hours, we were able to reduce the average fixed hours per restaurant to 370-380 per week. This was a Win/Win in balancing customer satisfaction with profitability.

“Profitability is never an accident...pay attention to details. Sweat the small stuff.”

In our effort to improve the profitability of the market, we soon realized that managers must have the total responsibility and accountability for their P&L’s. Part of the accountability came in the form of knowing how well then restaurant performed. From the beginning, we had to find ways in our organization to check progress and results with the monthly P&L. We knew that each restaurant had obstacles which they had to overcome in trying to improve their margins.

Our job was to offer a format in which everyone could openly discuss the barriers and give recognition for success in improving profitability. It was our design to have each restaurant manager review their P&L every month in a Managers’ meeting. This was a key in educating our managers on the importance of paying attention to the details of their P&L’s and a great learning tool for everyone involved. As a result we have been able to improve all areas of the P&L...here are some examples:

Food Opportunity The Grill Zone Manager is responsible and does every task related to food. All restaurants complete full stats on Sunday, reviewed by Manager and Supervisor and

Operations Manager on Monday. Restaurant Managers have a review day package completed on Monday. Managers’ meetings are held every Tuesday. Voice Mail is used to update daily food opportunity. Objectives are developed each week using the ISP Windows program. Month recap on food cost rankings, by restaurant, is sent to each store. Managers’ schedule is focused on the best coverage to improve food opportunity.

Crew Labor The Drive Thru Zone manager is in charge and handles all aspects related to new crew hires

from start to verification. Crew schedules are generated in all restaurants Monday nights prior to a meeting with the

restaurant manager to establish that upcoming week’s objective. Updating crew status in the ISP happens every Monday Night.

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Proper VLH are scheduled due to better volume projections. Crew schedules are reviewed Tuesday by the Restaurant Manager. Supervisors and Operations Managers look at LAB reports Tuesdays. Fixed hours are reviewed along with building peaks. Changes are made and posted by Wednesday at 5:30 PM. Hourly tracking VLH are done every hour. Voice mail to the supervisor the previous day’s TPMH. Daily FAF report is received by the Operation manager every morning at home by FAX.

Overall Profitability Restaurants are ranked monthly on profitability. A bonus program is tied to PAC targets. Managers present their P&L’s at the monthly Managers’ Meeting. All initial P&L projections are reviewed by a supervisor during their patch monthly

meetings.

These are just a few of the tactics that we have used to control our margins. The key here is to have a well organized plan that can be controlled and have every restaurant doing the same tasks. This makes the direction and follow-up by the leadership of a “operating company” much easier, clearer and more effective. Getting timely information in the hands of individuals that can effect change is a critical step. Concentrating on the essentials of the business from information on a daily FAF report can help anyone get greater results.

“High achievement always takes place in the framework of high expectations.”

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Rewards and Recognition

Part of motivation is to provide positive recognition for individuals and teams who are performing as expected. That is why it is important to have every manager and restaurant establish goals and objectives. This helps each restaurant keep the focus on the target. The challenge is to provide the right rewards and recognition to keep everyone motivated. We realized that it is hard to motivate individuals if they are not having fun.

One of our first intentions was to establish the fact that it was O.K. to have fun. To do that the leadership must demonstrate that behavior in the restaurant. A weekly drive-thru incentive seemed to offer what we were looking for. We decided that at least one day a week we all would be in the restaurant having fun by trying to put the most cars through drive-thru. From this we learned that our managers liked to compete and so did the crew. We learned that it was not always the “size of the prize,” it was excitement in the restaurant. For that one hour on that day they had the best drive-thru in the market. We saw restaurants increase car capacity over 40% and the market drive-thru increase hit double digits.

From this we had some key learnings -- that if we put an incentive together, it helped in getting the results we were looking for. We wanted to pay for performance and reward results.

We developed a bi-monthly mystery store shop program in which every certified manager and restaurant management teams could win quarterly prizes and cash. We took the profit plan and established low, medium, and high PAC targets for each restaurant and put together a monthly incentive for the salaried managers. Weekly drive-thru incentives tied to improving TTL’s and car counts are run every Friday with pins, movie tickets, mugs, etc. given to both winning crew and managers. A quarterly retention incentive allows managers to win cash for improving turnover, exceeding staffing goals, and having enthusiasm calendars in place.

Each manager is encouraged to develop in-store incentives to help meet their targets. When the restaurant meets the target, they celebrate what was achieved. However, they must continually improve by setting new targets.

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Summary

In summary, it is the total process that makes this program successful. Piecemeal implementation will not achieve the same results. Planning and organization must start at the top. It must be a proven system of procedures for running an “operations company.” It must be “best practices.”

This is not brain surgery. These simple steps, when taken together, helped our McOpCo “operations company” focus on building TC’s, take market share, develop future leaders for the region and the company and balance customer satisfaction with maximum profitability.

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