Reference no: EM13346841

Comprehensive Case Study

Ciao Restaurant was a very successful restaurant and was consistently ranked, by professional critics, in the top ten restaurants in Toronto.  The restaurant offered comfortable and polished service without being considered snobby or stiff.  The food was considered high quality; focused on quality ingredients that were not masked by over reduced sauces or over garnished plates, authentic Italian cooking just like Nonna, grandmother, would make.  Reservations were hard to come by, even Monday and Tuesday nights were busy, and guests would have to call weeks in advance to secure a reservation.  The restaurant had 60 seats with 10 more seats available at the bar for meal service. Susan Heights, the General Manager, was known for her balanced management style. Susan created an internal culture at Ciao's that allowed for open communication between managers and hourly employees. Susan had good business sense, a genuine personality and strong product knowledge with both the FOH and BOH specifications. Susan maintained a labour cost of 12 % in the FOH and 15% in the BOH.  She consistently maintained wine cost at 33%, beer cost at 28%, liquor cost at 14%, and food cost at 31%.  Susan had an annual staff turnover rate at 12% in the BOH and 7% in the FOH. Staff morale was positive for both hourly employees and the management team, Susan maintained a democratic management style. The owners were pleased with Ciao's key factor statistics and the overall performance of Ciao's restaurant over the past 5 years under Susan's leadership. The owners were working closely with Susan to tighten some of her key performance indicators to increase efficiencies with staff, sales, and profitability. Unfortunately, after 5 years of being the General Manager, Susan had another great opportunity and left Ciao's Restaurant to challenge herself  with a multiple restaurant chain in the Caribbean. It was difficult to replace Susan, whom the owners felt had lead Ciao's restaurant to its current success.  The owners interviewed several candidates, but the candidates did not have a similar management style and philosophy compared to Susan. The General Manager position was given to an external candidate, named Ron Downs.  Ron's resume consisted of assistant manager positions in several reputable restaurants in the Greater Toronto Area. The owners felt that the General Manager position at Ciao's restaurant would give Ron an opportunity to work hard and prove himself, they also felt that the foundation that Susan created wouldn't be overwhelming to maintain. The owners were not looking for a manager to change their culture or brand, they were looking for someone to maintain the existing culture and brand that had been successfully developed over the years.

In the beginning of Ron's Leadership

Ron's style was autocratic and telling, and his focal point was on operational efficiencies. Ron's strength, outlined on his resume, included maintaining costs, turnover, and profitability.  The existing staff didn't feel very comfortable, almost immediately, with Ron's management style because he was not as charismatic and democratic as Susan. 

Ron hosted his first staff meeting, as the new General Manager, to outline his goals, address operational changes, and introduce his new vision for Ciao's restaurant. Ron used very direct and forceful words, combined with direct and sustained eye contact.  His words were decisive as he spoke about making changes to make the restaurant more successful.  He made statements about change and wanted to ensure everyone was supportive of future changes; "With new leadership comes change, if you don't support the change then you will not fit into my way of doing things."  He quickly dismissed the current success of the restaurant and thought things could be done more efficiently to increase profitability. 

After a few months of Ron being hired

Ron had three FOH assistant managers, a Chef and two Sous Chefs; this was the brigade in place from Susan's leadership. Ron did not terminate any of Susan's staff in the first month because he felt it was important to observe the existing staff before any further decisions were made. Ron had little engagement with the hourly employees because his management philosophy was that front line managers are the communicators to hourly employees. Ron did engage with hourly employees when their performance was lacking; telling staff how to do things differently and more effectively. Ron had good engagement with his managers, and he communicated with them openly and closely.  In the second month Ron hosted three management meetings introducing significant changes.  Ron changed the staff meal policy, which previously allowed staff one free meal per day under $15.00 from the menu, to now charging $5.00 for any meal to staff under $15.00 from the menu. Ron secured payment of these meals by deducting them from the staffs' pay. This resulted in the staff becoming frustrated and several employees refrained from eating during their shifts to save the $5.00 fee. Ron felt that a free staff meal, to an average of 15 employees per day throughout two meal periods, was costly and effecting the overall profitability of the restaurant.  Ron calculated an annual savings of $16, 425. Regarding the lunch, dinner, and bar menus, Ron made changes to the prices, the ingredients, and the suppliers.  There was resistance from the Chef and the assistant managers  because it terminated supplier relationships that had taken Ciao's restaurant years to establish.  Ron was pleased with his performance and now maintained a wine cost at 21%, beer cost at 25%, liquor cost at 9% and food cost at 38%.

Ciao's restaurant never developed written job descriptions and training guides, but Susan had previously maintained a weekly training budget of $14 per employee to ensure job shadowing for cross-training and staff tastings to sell the Chef's daily features. Ron eliminated the training shifts and he also eliminated the staff daily tasting of menu features. Ron calculated an annual savings of $7, 280. Ron also changed the FOH staffing levels to reduce the size of the sections from 18 guests per server per seating to 12 guests per server.  The servers were not supportive of this organizational change but were not comfortable to express their concerns to Ron.  Ron felt this change would increase guest satisfaction and increase staff upselling skills by having less customers per staff member and increasing staff time spent with each guest. Ron now maintained a labour cost of 20% in the FOH and 6% in the BOH. 

Other outcomes under Ron's leadership included a staff turnover rate at 63% for the eight months of Ron's leadership. 6 out of the fourteen servers on the schedule had quit and found other jobs, two out of the six server's assistants quit as well.  The host team stayed together but a once cohesive unit was now experiencing in-fighting and more than one of the hosts was openly looking for an alternative job.  The Chef was forced to eliminate 3 cooks and was told he had to open and close the restaurant at least two of the seven days they were open.

After careful review of the profit and loss statement, by the owners, they were not satisfied with the new key performance indicators under Ron's leadership.  The owners did not understand how the new numbers would impact the sustainability of their business and recommended that Ron make the necessary changes. Ron in turn pressured his assistant managers to make changes to bring their key performance indicators in line with industry standards.  Ron did not provide his assistant managers with recommended solutions or show a willingness to make alterations to the changes he himself implemented. Ron's change in leadership, to delegating tasks to managers, was due to fear of looking ineffective to the owners.

After three  months, the beverage costs were maintained at their stated levels and Ron fired his Sommelier.  Ron did not replace this position as he felt the other assistant managers had more than enough time to cover these duties.  The two assistant managers were not well educated in wine, beer or spirits but tried their best to maintain the existing menu and inventory.  This extra work load caused additional stress on the two managers; moreover, guests were unsatisfied due to regular wine shortages due to inaccurate par levels of inventory.  Tension was building amongst the team resulting in the two managers making small mistakes in their regular job duties and those details had negative effects on the guest experience.

After Eight months of Ron being hired

The overall guest count was now trending downwards for weekdays and weekends.  This was once the hottest restaurant in Toronto, now you could call at 5:00 pm on Saturday night and could easily get a 7:00 pm reservation for that same night. 

Even with things not going well and increased meetings with owners, due to the restaurants performance,  Ron still maintained his management style and directive. The owners had finally had enough of watching their once thriving business underperform and fired Ron, after only eight months in charge. 

New Management

You have just been hired to fill Ron's position as General Manager.  You have been hired because of your impressive diploma you earned in the Food and Beverage Management Program at George Brown College. This could be a make or break situation for you and your reputation, remember how small this industry is and word gets around quickly, is now on the line. The owners now want you to present a very detailed report on how you are going to turn the restaurant around to its once successful status.  They want you to analyze the data during the time Susan was running the restaurant and compare it to what changes Ron made and how he ran the restaurant. Using their limited knowledge about the Service Profit Chain (SPC) they hand over a flow chart and say this might be helpful to you to figure out some answers.  You share with the owners that the SPC was an important part of your learning in one of your courses at GBC and are confident you would have multiple angles and explanations to your findings.  This includes understanding how the numbers impact service overall and a sustainable business model.

Based on questions relating to the case study:

Based on your knowledge of the service profit chain and how it impacts the sustainability of a business use the information presented in the case study and answer the questions below using the SPC model.

Question 1:

Compare the cost structures under Susan's leadership to those under Ron's leadership. 

• Analyze their food cost, beer cost, liquor cost, wine cost, training costs and staff turnover rates by outlining which costs are effective and ineffective for each General Manager.
• You are to compare their results to industry standards (minimum of 2 sources are to be researched) in order to determine if their costs are effective or ineffective.
• Analyze and compare both Susan's and Ron's employee retention and productivity strategies using specific examples provided in the case. Outline how each of their employee retention and productivity decisions have impacted the SPC in relation to the sustainability of the business.
• Offer one new strategy that you would implement to increase employee retention and productivity as the new General Manager and outline how you would implement your recommended strategy. Explain how your strategy will impact the SPC in relation to the sustainability of the business.

Question 2:

Write a service vision statement for the restaurant.

• Your service vision is to be directly linked to the service profit chain in workplace design, and job design to create an internal service quality to your stated vision.
• Your vision must have 5 intermediate steps to achieve your stated vision. You are to incorporate the goal planning sheet from Restaurant Marketing Leadership.
• Outline how your vision will impact the sustainability of the business.

Question 3:

Identify one specific effective strategy used by Susan and one specific effective strategy used by Ron. 

• For each effective strategy, identify the area impacted on the service profit chain for customer focus or customer satisfaction. Support each stated effective strategy with examples provided in the case study.
• Offer one new strategy that you would implement to increase customer focus and customer satisfaction and outline how you would implement your recommended strategy. Explain how your strategy will impact the SPC in relation to the sustainability of the business.

Question 4:

Identify one specific ineffective strategy used by Susan and one specific ineffective strategy used by Ron. 

• For each ineffective strategy, identify the area impacted on the service profit chain for external service value. Support each stated ineffective strategy with examples provided in the case study.
• Offer one new strategy that you would implement to increase external service value and outline how you would implement your recommended strategy. Explain how your strategy will impact the SPC in relation to the sustainability of the business.