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The Productivity Paradox

Uncertain Times

These are indeed perilous economic times. The list of indicators is staggeringly broad and deep: real estate, stock markets, consumer confidence, federal and state budgets threatening insolvency, volatile commodity pricing, and the latest sovereign debt fears. With our economy driven largely by consumer spending (at nearly 70% of GDP), it is no revelation that restaurant companies are finding it increasingly difficult to grow and finance their businesses. Clearly, a competitive advantage is needed to gain a foothold in this rocky economy.

Zero-Sum Game?

In the eyes of many proprietors, one can either compete on service or cut costs, in a mutually exclusive showdown of sorts. One of my clients memorably labeled this dichotomy, “high touch vs. high efficiency.” On the one hand, only impeccable service can maintain the customer’s fickle interest when expectations are sky-high for their exceedingly scarcer dining out occasions. However, if service comes at the expense of profits, one can only wonder if a restaurateur is engaged in a battle that will surely drain the coffers all too quickly. Besides, profit is the lifeblood of all business. Perhaps, an aggressive cost-cutting campaign is in order, as a means of riding out the storm until the consumer fully returns, pockets flush with discretionary cash?

New Calculus Of Productivity

The traditional zero-sum game of service vs. profits, as a tradeoff, is outdated once you accept the new math of productivity. Productivity, simply defined, is the measure of output as a ratio of input. So, as you improve productivity, the amount of stuff (food, service, sales) you produce per unit of input (labor hour, inventory, square foot) increases. Only productivity improvement enables a restaurant concept to simultaneously improve service and cut costs, thus shattering the aging paradigm of service or profits. Or, more plainly, you truly are able to do more with less.

Sources of Productivity

Productivity is manifest in many forms: labor, equipment, dining tables, storeroom, food – basically any resource where you can identify a tangible output. A systematic process improvement initiative, enabled by classic process analysis and work design techniques, can and will lead to significant improvements in productivity in any of these areas. By only eliminating the non-value-added components of a resource or process, you are able to reduce the input costs without sacrificing the quality and quantity of output. Alternatively, saved resources can be reinvested to achieve a higher level of service.

Sustained Competitive Advantage

“In business, I look for economic castles protected by unbreachable ‘moats’.”
– Warren Buffett, investor and CEO of Berkshire Hathaway

In Buffett’s analogy, the wider a business’ moat, the more likely it is to stand the test of time. Given a successful combination of service, food and environment (the castle), only productivity can maintain an enduring competitive advantage (the moat.) Furthermore, a continuous process improvement culture is a necessary component of a long-term competitive strategy. It is important to continuously build upon productivity improvements in order to continually widen the moat. The productivity paradox, or doing more with less, is a viable alternative to choosing profits over service (or vice versa.) Restaurant concepts that embrace the productivity paradox are well suited to grow and prosper in any economic climate, but especially when times are tough.

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