When Steve Carley took over as president and CEO of El Pollo Loco Inc. seven years ago, he wondered how his employees could be concentrating on cooking the franchise’s signature flame-grilled chicken when they were busy trying to cobble together a working computer system to take customers’ orders.
It was one of many problems that was holding back the potential of the chain.
Not only was the technology woefully obsolete, the franchise owners were grumpy, and the company had lost its focus.
“We had a whole range of things we had to deal with, starting with a large amount of discontent with our franchisee organization,” Carley says. “All of our restaurants were run down, old and tired. We were cannibalizing parts for our POS systems from other restaurants because our technology was so out of date.”
Despite these challenges, the company was doing well financially. It had posted three consecutive years of more than 7 percent same-store sales growth. So while fixing the problems, Carley also had to be careful not to screw up what was working well.
When so many things need to be fixed, the first step is deciding which problem to tackle first. Carley says making companywide changes presented a unique challenge.
“It’s a little bit like rewiring your house with the electricity on,” Carley says. “You can’t just stop and take a year off to get all this stuff put together, so you balance it.”
Carley started by considering where his upgrade dollars would be the most effective.
“If your whole remodel budget goes into fixing the kitchen, you’ve done nothing for the customer and you’ve done nothing to elevate yourself against your competition,” he says.
“So you make decisions around what’s part of this strategic remodel program and what’s basic repair and maintenance, and you put them in separate buckets. Then you look at your available capital and you start with what’s in the worst shape.”
Carley set up a three-year schedule for the company to solidify its foundation. Some programs, like installing state-of-theart technology and developing and implementing a $15 million remodeling plan, had to be taken one step at a time.
“We put them on a three-year program so we could take a chunk of it every year, and by the end of three years, we would be where we needed to be,” Carley says.
Some problems, like the discontent among franchise owners, couldn’t wait three years.
The franchisee requests were straightforward: Improve communication throughout the company and achieve total clarity regarding the proposed remodeling plan.
Carley laid out new ground rules of how the management team was going to work with the franchise owners and their employees. He told them he wanted their input to help him make the best decisions for the company, but that he reserves the unilateral right to manage as he sees fit.
All of Carley’s plans for the company would be useless if the franchisees weren’t on the same wavelength as the management team. Carley says to drive change, you need endless repetition as the first step toward successful communications.
“You just never change your script,” he says. “You never stop saying it, you never stop repeating it; you weave it into every message you make. You weave it into every speaking engagement, every voice mail, every meeting and into your standards.”
One additional hurdle Carley had to overcome was the widespread irritation of the franchise base with the company’s direction. The franchisees weren’t happy with the way things were going under previous ownership.
“We had a company that had been run as a stepchild by a corporate parent,” Carley says.
He started to fix the problem by leveraging Jim Collins’ ideas in “Good to Great” into the company’s strategic plan.
“There is probably no company that better epitomized a good company than El Pollo Loco,” he says. “We had good food and good employees and good franchisees. We had good growth and good profitability, but we were far from great. I needed a vehicle to recognize and not denigrate the efforts of the folks who had been here before me, but, at the same time, begin to plant the seed that we’re far from great. Only great companies thrive in good times and bad, and our mission was to become great.”
Setting a new standard
Carley’s plan to lead his company from good to great began with installing innovative benchmarks and ensuring his employees hit them.
“Start focusing your team on benchmarks that reflect the best-in-class performance, not benchmarks that reflect 5 percent better than last year, where you’re just challenging yourself against yourself,” he says.
One way to do that is to look for people both inside and outside the organization or even the industry who reflect the absolute highest level of performance. Then you can track your performance against theirs, instead of comparing to your scores from last year.
Carley says this holds your employees to a higher standard, and it has helped El Pollo Loco reach new highs in guest service and satisfaction, food quality, and safety on the job. For example, workers’ compensation incidents have dropped from 250 per year in 2002 to less than 50 in 2007.
Striving for best-in-class quality in each facet of the company’s operations is a long, difficult process. But once that mind-set is ingrained into your management team’s thought process, you can’t let it slip away.
So once you’ve created straightforward metrics that establish the standard for success, from both a customer and employee standpoint, what’s the trick to making sure your employees are hitting those benchmarks?
“You need to take operating information and convert it into information that you can’t ignore,” Carley says. “So you create a set of metrics based on what you are trying to accomplish, so that it’s clear to the casual observer who is achieving or overachieving and who is not and in a way that they can’t ignore it.”
At El Pollo Loco, that information conversion is so simple that if you understand how a traffic light works, you’ll know if a particular store is a top performer.
Restaurants that are hitting the benchmarks get to hoist a green flag in their stores with pride. Restaurants that are just a bit below their target metrics post a yellow flag, and the stores with significant work to do operate under a red flag.
The relevant information is dissected on a monthly basis, ranked for that month, and then publicly reviewed by management.
“The key is getting the metrics and benchmarks right and then tracking them closely and publish their performance under a harsh spotlight for everybody to see,” Carley says. “Your best employees will respond to that and step up, and your marginal ones will either improve or leave.”
Push the limit
When you’re rolling out changes, Carley says one of the misconceptions many CEOs have is that alignment has to come before results. For years, conventional wisdom said you needed to align your employees with the company’s goals in order to create momentum, which would then lead to improved results.
Carley saw this practice in effect when he worked at PepsiCo. If the company wanted to launch a new initiative that was expected to impact corporate culture, the human resources department and store operators would be given six months to win the hearts and minds of the employees before the initiative would launch.
“They’d have meetings and presentations, they’d create board games, they’d have off-sites, all designed around creating alignment around a particular change in direction,” Carley says. “That just doesn’t work.
“What works is finding somebody anybody who is either smart enough or stupid enough to do exactly what you ask them to do, who gets fantastically better than average results from that, then holding that individual or group of individuals out as an example and saying, ‘No. 1, this is possible; No. 2, they’re no smarter or have more resources than you do, and No. 3, this is what I expect, so get in line.’”
The idea that alignment is actually established because of results and momentum not the other way around was from Collins’ book, and it resonated with Carley because of his personal experience.
Using this process, he was able to quickly see who his top performers were and who was dragging the company down.
Finding the overachievers who can help you reach those best-in-class benchmarks is a difficult task. Carley says the keys are to create a work environment of transparency and communication and only hire employees who fit with the environment you’re trying to create.
Like firing a flare into the air, the CEO has to set the initial example for his or her employees. Carley says you have to put your personal values out there as a public statement. That way, employees know what type of behavior will be rewarded and what type of behavior will not be tolerated. When you act in accordance with your published values, your company will attract people with similar values.
Carley has seen his strategies pay off. Once the three-year restructuring period was complete, “The Crazy Chicken” was hitting new highs. Operating revenue has increased by $41 million since fiscal 2004, to $260 million for fiscal 2006. The chain also opened 39 new stores in that period, for a total of more than 360 stores in seven states.
Through all the changes, Carley says one of the keys to understanding is the importance of creating a feedback loop. If something isn’t working or a message isn’t being understood properly, your employees can’t be afraid to tell you about it. For that to happen, you need to show some tolerance for “learning” mistakes. Celebrate the risks that panned out, and celebrate the knowledge gained from risks that didn’t work.
“You’re always going to have elements of the plan that don’t work correctly,” Carley says. “But if you’re trying to make a difference or turn something around or dramatically enhance performance, people have to know they have the ability to take risks and make mistakes.”
HOW TO REACH: El Pollo Loco Inc., (714) 599-5000 or www.elpolloloco.com