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    © All Rights Reserved
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    14 views34 pages

    Taco Bell and Frito Lay

    Uploaded by

    Maria
    Harvard Study Case

    Copyright:

    © All Rights Reserved
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    of 34
    Taco ll In. (1989-100) 247 TACO BELL INC. (1983-1994) ‘When John Martin, President and CEO, {joined Tac) Bel in 1983, he found himself at the helm of a chain of Mexican fast-food restauran's with an appropriate logo—a man sleeping under @ sombrero. Having made a career in the fast-food industry as president of La Petite Boulangerie, Hardee's Food Systems and Burger Chef, Martin Delieved he could wake the man under the sombrero. The question remained, however, as to whethor Martin could make him dance to parent PepsiCo’ demanding beat. John Martin rellected on those early days: Our bigest problem was thst we did't now what we were. We thought maybe we were in ‘the Mencan fed business... The reality was, we were n the fast-food baninee, and by nol ‘understanding who we were, wh our potential Customer was, we were just slighty missing the mark Company and Industry Background, ‘he fastfood market, which had grown aub- stantially during the 1960 and 1970s, was showing signs of maturing by the early 1080s. (See Exhibit 1 for statistics on the fastfood industry in the early 1980s.) Come ‘This ease consolidates two provioely published ass: Toco Dell Cop, develpad by Poftogee Len ‘Stilesinger ind Roger Hallowell and Tyco Bel 1064 Aovlopedy Prolene Len Schlesingst, Tie oni {ion was prpared by Prefeeors Dave Delong, Boston University onda Applegate and Lan Sdhlernger "opright ©1998 by the Preidant and Fellows of Hayverd Cle Harvard Busoes School ave 06129, petition had bocome more intense as indus- tay participants fought aggressively for every point of market share, In 1982, Taco Bell, a $700 million fast food chain, had 1489 restaurants, 60% of which were franchised units, The company had 40% of the Mexican fast-food market? but a negligible market share of total fastfood, Martin knew that it his company was going to compete with ite much larger, more established rivale, he ‘would have to male signffeant changes. In the early 1980s, production at Tuco Bell was labor-intensive and used low levale of technology. Suppliers delivered fresh, raw food to cach restaurant eeveral times a week. Managers and craw members used their time bofore opening and during lulls in demand ta clean ‘and prepare ingredients Tor menu stems, Assembly occurred when ccustomere ordered. Beeause corporate head- ‘quarters streased food control and customer demand was difficult to predict, there were often shortages for prepared raw ingredi- ents (chopped tomatoes, shredded lettuce, te), which rasulted in significant delays for eustomers Cooking was also done on-site, Variations in who was cooking and the sometimes frenetic pace often led to inconsistent spicing and stirring, As a result, taste and food qual- ity could vary dramatically even within an individual veateurant, Areas dedicated to food preperation and cooking took up about ‘0% of the floor plan in a typical Tico Bell uihard Martin Nations Restewront Nowy, Say 36, 199. 4 UWRIIIBIT T Barly 1980s Fast Pood ndusioy Buataties ROT (store level) 18.7% ‘Oporating margin (otore tev 153% Sales por dollar of capital oat sie Hamburger chai, average sles peraiore 018028 Chicken chain, average sales er store $861,160 Mexican chain, average soles er store ‘ant268 Salos growth, 1970-1980 ‘compound samuel ise Labor ata percent of sates Undtsy average) 219% Food eos. a pereentof sales (industry average) s12% ‘MeDonals advertising cots a pereantof sales 58 (Capital necessary ta commence porations, MeDenal $660,000 Capital noeessary to commence ‘perasions, Kentucky Fried Chicken $478,000 Sure art Earn Te aw Benito Po Pad resto int, Even though 50% of some om: petitors’ sales wore delivered out of drive: Urrough windows, Taco Bell had none in the carly 1980s, "The food assembly line in the kitehen lay Parallel to and directly behind the eustomer service area. As customers waited to place ‘thir orders and receive their food, they walched the backsides of crew members a8 they freneticelly assembled each order. One ‘Taco Bell exceutive referred to this sight as “the good, the had, and the ugly.” Cashiers took orders and wrote them ‘manually on a plastic board. As the produc- tion crew read and fle the orders, cashiers erased existing orders before moving on to.” the next customer. The system resulted ia frequent fulfillment errors. Within the restaurants, restaurant mane agers (RM), essistant restaurant managers (ARMs), and shift supervisors were directly involved with receiving fresh feed chipments each week, overseeing food preparation throughout the day, ensuring eustomer ser- vice, overseeing clean-up, and lending hhand when necessary—partieularly during meal-time rush hours, RMs aleo faced the time-consuming task of manually developing work erew sehodulos in a business with an annual turnover rate of 220%. Taco Bell's ‘manual systems, which were also used for placing orders and performing other admin istrative tasks, led to significant oversights and errors, provided no data for manag ment analysis, and forced employees 20 spend a great’ deal of time in repetitive, paper-intansive, non-value-added tasks. ‘Ms reported directly (o district managers (DMs), who often played the role of police. ‘men, pointing out problems in restaurants and ensuring that corporate standards were maintained. (See Exhibit 2for a summary of ‘Taco Bell's fine organization in 1983.) They regularly performed “white glove" inspec: tions of the physical restaurants and audits ofthe financial books, oRten cresting antago: istic relationships with their RMs, who they spent sliost ne time coaching or developing, 1983-1988: Fstablishing Direction and Implementing Incremental Change Starting in 1988, John Martin began a series of changes in the Taco Bell organization designed to alter the company's mind-set, as well as ite capabilities for pursuing a strat. egy to compete with the’ major fast-food chains. The first thing he did was to made femize Taco Bell's physical units, ‘These “ane Vee raat partons changes included remodeling the restau rants, increasing seating capacity, adding drive-through windows, installing new signs, and outfitting employees in more eon: temporary uniforms, The company also added new menu items, including Nachos, Taco Salad, Mexican Pista, Double Beet Burrito Supreme, Seafood Salad, and Soft Shell Tacos Th addition, Musa wcuslerated the cou: pany’s growth, averaging 249 new stores Der year from 1989 to 1988, an increase from leas than 100 units per year that had been added in the late 1970s. This expan: sion also extended Taco Bell's geographic presence into the Midwest, Southeast, and Northeast. In the process, the company replaced its old 1,600-square-foot mission ‘Taco Hall ne. (1969-1990) 240 style restaurants with more modern 2,000- square-foot units, During the same period, the parallel food assembly line was replaced by a double ‘assombly line perpendicular to the eustomor services area. This improved product flow, Increased capacity, and made serving easier in the drive-through windows that were being installed, The Plexiglas boards used for writing orders were alao replaced by elec- tronic point-of-sale aystems (cash regiters). ‘These were tied to television monitors aver the food assembly line, which indicated what hhad been ordered. The new electronic system allowed the company to track eales, product six and inventory much more closely ‘Training and development were also improved in the mid-1980s, although train- ing for ARMs and RMs continued to reflect a Jnuman resource strategy prodicated on very high turnover. Training for district man. agers, however, was not significantly changed. The head of operations training provided this overview: ‘sto training, we were definitely a procedures, policies, and practices organization, We made ure each manager lnew how to make every product, knew the appropriate weights for brony proguet by "knew" I mesn had memo ‘zed. We ware vey operationally driven there wos # tie work on stalfing, but only ak the crow level, dealing primarily with crew fntey and eat. 1088-1991; Transforming the Business ‘The Mexican segment of upscale restau rants, fast-food, and supermarket food sales grew substantially during the 1980s. In the ongoing battle for market share in the maturing fast-food industry, Taco Bell and its competitors began to introduce new prod- ucts to attract customers, Some incremental business was generated by this strategy, but the new products also had a negative effect on kilchen efficiency, which influenced both costs and quality of service, The introduction of fajitas, for example, required new grills and exhaust systems costing Taco Bell $90 aillion, Reflecting on Taco Bells market position in 1988,¢ Martin said We mere realy a small player Ono of the {hinge that struck us was perhaps we seeded tofigure outa diferent wry gest thi topped a trying lo cnmpate head-on ith the "big" guys who had” well-established, enrenched brand, Maybe insend of dret Scnpeting, maybe we ought to Ir to cha {hewemen lie bit,. Woe realy wet inthe Inumess of malig fd, Were In Ue busines otfeeding pene Changing the Rutes of the Game Recognizing the industry's margin squeeze, ‘Martin developod a new, mare holitie busi ness strategy focused on customer value, As part of the process of determining how to define value, in 1987, Martin commissioned a study to bottor understand what ‘Taco Bells best eustomers wanted from a fast= food restaurant. ‘This was followed. by another study in early 1989, The result of ‘hese two studies confirmed what Martin Suspected from his years in the fast-food industry, Customers said they wanted FACT: fast-food Fast; fast-food orders Accurate; fost food served in a restaurant that was Clean; and fast food at the appro- ‘Daring Ue 1980, ndstry bor cate a a pret ge af nes grew on svrape by 8%, bt at Tato Bel cut Increased On art Lae oft or einghigh cota tarove Andy nth real cee pies 1h eontracton cate atatpping the rate ofan, {he inary’ average cat dal a renaarant ste Sneroand alent 8 Fal fod ents ined by Sindastsy overage of 19% dar tix por at Ta Bu ceats aetullyseressed shy om 27 to. ‘tye Ball estimated thet 60% of rdore delivered in the fistfnd sey Gag ne Cal cha) were priate Temperature.’ FACT clarified that, at Tuco Bell, a commitment to customer value required a fundamental change in management thinking; the orgenization needed to stop viewing quality and price ag incompatible tradeoffs ‘Armed with this information and in an effort to begin “changing the rules of the ‘game,” in early 1988, Taco Bell adopted a strategy of value pricing (seo Exhibit 3), fully recognizing thet, ithe company was to dramatically lower prices while preserving ‘quality, it would also have to dramatically reduce costs. To achieve these seemingly incompatible goals, Martin realized that incremental change would not work: a radi cal redefinition ofthe business was needed. K-Minus and SOS ‘One ofthe most far-reaching changes imple- ‘mented st Taco Bell during the late 1980s ‘was an initiative called ICMinus, With Minus” (standing for kitehen minus), the restaurant kitchen became a heating and assembly unit. Virtually all chopping, ecok- ing, and associated clean-up was transferred ‘to ‘corporate headquarters. Ground beef, chicken, and beans all arrived at the restau rrant pré-cooked in plastic bags ready to be heated and served. Other food products, such as lettuce, tortillas, and even gua camole,slse arrived prepared, packaged and ready for use in assembling menu items. ‘With thio Bold move, Taco Dell vere Ue space configuration of their typical restau rant from a 70% kitchen/30% customer ser. view ratio to 80% kitchen/70% customer service. In addition to crabling dramatic improvements in efficiency and much tighter control of the quality and consistency of its food, K-Minus also greatly expanded seating capacity within the restaurants end ot adhe fod cal BRHMBITS Taco Dell Nena Selections: Price Comparisons 190919881991 ‘Teo soeT 80.79 $0.59, Burrito Supreme «132165 1.40 Pintoe and choose 0.69 07800 ‘estoda 06s 079 ose Peps argest) 079 0990. Tote tht de largent Popa nereared in olaa during oo ala 1980, provided space to expand drivethrough and Sther nooveatin soles A decrease in eal Cae cpenes in rpotion Waslen adn Segrepate labor cose rented ‘fp mestcustmerd demand fr spead and quality Teo Bell aio inotitotd te Speed et orice (S08) program. ‘This initiative Fodesignedproveson sl further and dye) pel opechc. meavures of performanes Hecipe were reformalated and beated hol dng areas mere developed By 1090 Tuco Bel Fetourants could preassemble and bold Of or their moat popular mens tems ready for immediate see for up to 10 minutes. ‘Thebe eiditional changes snereased. peak Tour trancoction capacity by 84%, and reduced castomer waiting times by 71% ‘The Changing Role of the Restaurant Manager ‘While it was reconfiguring operations to cut costs and increase speed of delivery, Te Bell also transformed the roles of its man= agers. A key point person in implementing, the strategy was the restourant manager; this position was recast as restaurant gen- tral manager (RGM), Employees occupying this new role were expocted to take on more decision making responsibility and account- ability for their restaurant, developing stalf {and managing P&L, Jehn Martin explained: ‘hoe Hel on. (1983-1990) 251 “The new rie ofthe RGM was born in Use toton of asiésufleny. Restaurants ean, in The operate Ly tbemaeven Tne oti ine thers noses sxonee in aft fod restaue aati ty are 3.800 {ngs all going om once. The type op awe commun and contol eat deal With howe hing under ay siteunetncee ‘Taco Bell’ senior vice president of human resources offered another view of the role changes: [At the time we designed the new Tacy Bell, in Tove 1089, wo realized that we'd neod a whole sew peopl sete We were nga asking copie to do now things and we roalized that Xtc need new training both sm eantont nd Tetverg. Hom ne pad pape wo have tobe dierent, and how we managed people would fave to change. We'd got» more management by exeption, more coaching, broadening spans, tElung cut layers Communizaton would have tolimpove. The eulare wuld have change “There was ato ta three-year tineame in wish we sigefcantly mised the boreh on FROM shill. We wont through an analysis of the ealber of the orginal RGM». «ond oo Gclermined that about onothied of or RGM ould rab the sprit of mnt wo ere tying fo Siva te rextnurant love Anthor thie, with nelopmont snd sooching auld aeove the Stated slanderd of peformance. We thought {hat one third ould not make the mark ‘ofl the new RGM rl, Taco Ball began tooking or people with skis and potential Aitorene than forthe oh managers roe. ther‘ bref Interview; an RGM candidate tout a ifethemes indiestor tat co igentify the preaenco ef tells noeesary in GMs. Indl who were ied began aang rogram, which under the mow stratogy Fowred heavily on leadership and operating teanagement cis, HGMa calved tang Inoyeatonal ple and proedives, and Gve aye otlendecthip taining that covered top- fen such ao situational Ieadorsip, coaching, Srging confit restaurant communication systems, creative problem solving and deci sion making, and implementing change, ‘Transforming the District Manager’ Rote ‘The district manager's ye at Taco Bell also changed under the now strategy. With a new {ile of “marketing manager,” by 1900, dis (rick managers’ spans of control "had inereased from 6 restaurants to 12. Despite the greatly increased responsibilities some marketing managers tried to retain their ‘traditional “policeman approach” in dealing with RGMs. By 1991, however, the span of control for marketing managers was ex- panded to 20 restaurants, and they were vir tually forced to begin managing by exception ‘nd {o change from policeman to coach, ‘Many of the former district managers could not make the transition, ‘To fil the vacancies, Taco Bell took the radical step of looking for talent outside the fastfood industry. They began recruiting sales and product mansgers with Fortune 600 com- any experience, and bogan to hire gradu ates from the top MBA programs in the country. Convineed they could teach these new general managers about the industry, senior management sought candidates with leadership and management skills who could coach and develop RGM while alsa Duilding dhe business in their area. Ongoing ‘taining for marketing managers was also enhanced, By 1990, six days of leadership (raining included a'range of topics such as leadership practices, ieshuds to ereste a shared vision coaching, communication, adapt- ing to change, technology/MIS, and finance. Changing Incentives Altering compensation and nonmonetary reward systems was also critical to trans. forming middle management roles at Taco Bell. In 1989, the average base salary for restaurant managers was $28,700 with a $4,400 annual bonus, which was almost! always paid. This compensation was stan- ard in the fast-food industry, and unhappy ‘Taco Bell managers simply "walked serous the street” to another fast-food chain, They had no commitment or sense of over in the company . When the skill levela and responsibil ‘were inereased in the new RGMs role, the average base salary was raised to $32,000 (with range of $26,000 to $40,000). The farget. incentive bonus was incrensed to $12,000. Nonmonetary compensation also played a key role in retaining managers, since monetary rewarda peaked early in ¢ successful RGM's career, Career paths, which traditionally had been very limited, were redesigned. For example, the RGM wes no longer limited to managing a single restaurant. In the new organization, they were able to expand their job and increase their pay by opening new points of distibu- tion? and building business through new channels, ‘Market manager compensation was also redesigned to attract more highly skilled individuals and to create incentives that would keep them challenged. In the late 1980s, the average district manager's salary hhad been $88,000 with an average bonus of $5,500. By 1991, the average base salary averaged $60,000. ‘The discrepancy was ‘caused by the need to offer a higher base to more experienced managers recruited from ‘oulside the industry. Target bonuses for all marketing managers were $1,200 per unit supervised ‘Wein of tbutonotade rina Tso Bel restaurant were called “pada” Sabseqaetiy, they Weald come’ tobe called Ponts of haces (ECAR, ‘Bramplosinlded taco cars inl ad roperme ‘et elng he vendo or scoala progrem, eid operating Tce el Enpese nitro sardine) Ghent for marketing managers, Instead of Yerlical advancement within the Taco Bu yenagement hierarchy, success needed to be redefined, Potential careor moves for market ranagers included either expanding their Gurrent job by growing the Taco Bell busi- ress in their area oF assuming a new posi- fion within the expanding Taco Bell business, New positions included: becoming manager atone of Taco Bell’ larger restau rants (for example, Chevys); assuming a position as an international market men- ter, or moving into product or business man- fagement in'Taco Bell's new retail business.” "To support the job expansion career approach, Taco Bell ereated a very broad falary ronge for marketing managers Movement through the range was dete>- mined by the strength of an individual's pe formance, the complexity of their market, and job tenure. Creating Safety Nets ‘The new, lean Taco Bell hed the potential for significant profit and growth if things ran smoothly, but it also had the potential for Aisaster if company standards were not maintained, With the removal of layers of management and frequent supervision of restaurants, new controle were implemented to ensure adherence to the company policies and value systems, There wore three pric sary “eafety neta.” During the early 1060, Tato Bel expanded the ott cun, iy road nooner Post venand ober ru sult ao thy pe Si eer h sonny ef the Tce Ba Senda in 198) ‘ees Bll In. (1989-1999) 258 + Alollvee telephone number was installed for customers to commont on Taco Bell's restaurants, food and service. Calls were fanewered by an external vendor that recorded comments and forwarded them to the relevant operations area. + Mystery shopping was a second safoty not ‘Amystery shopping eervice regularly sent individuals to rate restaurants on specific quality issues, and these reports were ‘used in eaTeulating bonuses for restaurant managers. + Marketing surveys, also known asthe eus- tomer intercept program, wore conducted by teams of Taco Bell employees who ‘would arrive unannounced at restaurant land spend the day asking customers to ll tout brief questionnaires about their Taco Ball experience. The data was used in determining the market manager's bonus tnd to better understand how the chain was viewed in a particular geographic market. Developing the Information Infrastructure Teen Belo managers needed a iormation tnd communion system that would make it pecibe to perform In thee now sole. Tn Tobey an MUS project was initated that would provides personal eoreter in every ore lnked to loa! POS system, to the trarkating managers and to corporat head uertern, Known as TACO {Total Auto fhation ef Compuny Operations), the new byotom provied thy inftasteuctar, forma: on and analytical tools needed to support few management roles "TACO reduced operational paperwork for reotaurant general managers by a Toast 10 Houre a woe I also provided ROMs with opts en fod cost, abot ent, inventory, perishablo items, and period-lo-date cost, IM with variances. TACO aleo ed fanetons ut helped RGMs with labor scheduling fand service operations planning for exam ple, TACO could provide an estimate of the sales volume to anticipate on Friday between 1 and 2 p.m. based on the previous six wooks! volunte. The schedule could be adjusted hy the RGM to account for holidays tr special events, or it could be disregarded entirely at the manager's discretion. Com menting on the value of the computer ays: tem, John Martin sai ‘The restaurant manager now has more infor mation than the corporation ever get. He or the hoe it immediately and hae dhe tole to {ake care of problems witheut someone saying, “You've got a problem’ Talking empowertnent is one thing. Really living itis another. The information needs of marketing man- ‘agers were also supported by the system, Which provided them with daily, weekly and monthly reports on store operations in their district TACO also tracked sales for senior ‘management by downloading the informa- tion from store regiaters to a central com puter, This eliminated several accounting positions at corporate headquarters, Finally, TACO had a communications function that wes eritieal for coordinating interactions between marketing managers and store managers. Previously, marketing ‘managers either had to mail information, visit or eall store managers, TACO gave marketing managera an elecronte meil aye tem thal provided another way to communi- cate with ROMs, om 1988 Lo 1994 the fast-food industry ‘was mired in a recession and achieved only singleslgit. growth, But with the changes John Martin had initiated, Taco Bell bad grown from $700 million in revontcs in 1983 to $16 hillion in 1988, And at the end of 1999, Taco Bell's total system sales were ‘almost $4 billion. Since the radical changes initiated by Martin in 1985, the company had more than doubled its sales and tripled its profits; in Keeping with ita value strategy, ceastomer satisfaction had also increased (eae Exhibit 4), ‘But Martin was not satisfied. His strato- gic vision was no longer limited to the fast- food segment. By Inte 1991, Martin had reformulated the firm’ strategy yet again; to be successful in the future, Taeo Bell would ereate and dominate the convenience food business—a business that reached out to customers any time and any place they were hungry. ‘John Martin's goal for Taco Bell was to evolve into a $25 billion food retailer with a worldwide distribution system of over 200,000 POAs by the year 2000. To reach this aggressive goal, Taco Bell would have to expand beyond fast foods. The company hogan a string of acquisitions, and by 1994, ‘Taco Boll had three restaurant brands: Tuco Bell, Hot-n-Now, and Chews Mexican Restaurants. In addition, the company had expanded its signature brand of retail prod: ‘ucts through Taco Bell New Concepts, Taco Bell Supermarket Retail, and Taco Bell International. (Bee Appendix A for a sum ‘mary of the Taco Bell brands in 194.) Organizing to Manage Complexity In anticipation of the expansion of the business, Martin used lessons learned in K-Minus’ to enable efflient’ management across multiple brands, channels, and mer- kta, Rather than add multiple layers of infrastructure, the company developed a concept called shared resourees. Managers ‘were asked to identify the infrastructure requirements for the new lines of business; they then met together to identify how they could capitalize on the strengths of Taco Bells existing infrastructure or infra. structure that was available elsewhere in 1999 19921091 ‘Teal eyatom alee foo $s 928 fad 1 lee asi 198 161 1440 Average unit en, ot Sjosmin $000) 925 616 S771 [Net worldwide perating profit Ghemilions) 2592158160 Custer Saison (990199) PepsiCo. For example, the Frito-Lay mar Keeling, eales and distribution infrastructure ‘ould be used to support the Taco Bell line of retail products. ‘While the shared resources concept was critical for the success of the new stratesy, Nartin recognized that the more critical ‘reat to the company’s foture success was fembedded within the very foundation of its trurrent success, That threat was complacency. 1990 1989 1988 1987 ‘Too Pl ne 1989-1954) 256 1986 1985 1984 1983 far $16 HS $13 SLL $09 $07 Liv 09 08 07 05 05 04 se 589 579560850 439 us 85 78 848 eating a Learning Organization ‘Trrensure tuture suctess, Marin ratized {hata Bll wuld need t ove beyond Changing is stack, sles and processes; Geetha would also need to change its fulture=the dooply embedded beliefs and Gales that framed how individuals made Yecsions and look actions. The now Taco $iiNioad nood te embrace contiosous, yet inteligent, change, Survival and success in the future would depend upon learning fas then’ the competion, Martin ‘explained: is ILaarning organisations) are able to capture, hare and take ation oa formation betta al Isee than the comptitor A leatting orgeniva: no tan stp. 1 ‘works she ose ts an organization that gl bles up information and experiences lke a sponge and shares those learsinge throughout the enterprise im minute, hovrs, snd days rathor than weeks, month, and years ‘Taco Bell belioved the benefits of creating such an organisation would include: increased individual awareness and collec: tive organizational 1@; greator organizational Aexibilty and speed of response; institution lization of employee selfsulfciency and innovation; and inereaged individual and team productivity. But moving to this self- sufficient learning model involved further refinement of the organizational design, Taco HIRI Points of heweee 1000-1000 Biiranctie Cl Company MT sas 330) aso ell pursued a number of initiatives to ereate ‘and support a new learning eulture, Pushing Down Dectston Mehing in the eat 16000 eat By Dat Erowth wa uted by i grealy sip Tere ort eke seen Sema apres unt Deuce ob ato Polis of Aes (SOK) easel E00 we 90 ns Beta oe Sa Sinton scan ree ae fuck varied estos oe ightcon aes fog cfoetan nigars einen Ney ten Ball continued to inefease ln matager tans cE roponstie is oan ashe openers ort the anand eed saa xu ofthe ane and ented ee pany io any ineeane FOR aaa nei rlecog "he eadienal Rad menagement structure (Gee Exhibit 6). An inlogral part of increasing managers’ spans of responsibility was the development of feara-managed units (MUS). 'TMUs were teams of crew members sul ciently trained to manage a store without a falltime on-site manager. The intent was to freate teams of crew members who were capable of performing all of the day-to-day tasks of a general manager (QM).? Senior management considered TMUs @ naturel tvolution of Taco Ball's empowerment strat~ fy, and by the end of 1999 there were "TMUs in 90% of the company-owned restau rant locations stores. As Taco Bell broadened its business in the early 1990s, TMUs were a critical mechanism that permitted general tanagers (GMs) tg manage multiple POAS But the teaming concept had several other important impacts. It forced GMs to incre Min 1002, the tes “etaurant General Manager” sud *Aesntnt Restouron. Goperal Mawager” were ‘hanged t General Stenoge” and "Ariatnt General ManegerThin change reiead te eosin of he ‘Revollite beyond Ue adiboral ataurant, ee TRRTOTE © Span of Responsibly, 1860-1008 8 wo 17H Ce Ua 1993 o. Une Taco Bell ne, (1088-1901) 387 ingly become coaches and trainers, working with their crews to help them broaden their Jobs ard accept now levela of responsibility. Implementing TMUs also helped create @ celture of interdependence and information sharing among crews and management ‘hat would be essential to creating both sel sufficient crew-run stores and a learning organization in goneral ‘Just as erew members were compensated for astsming sdditional responsibilities, ‘Taco Bell's compensation system for GMs ‘was changed aa well. GMs continued to have f variable pay eystem, but it was much more highly leveraged. Managers’ base pay aver- ‘aged $30,000, but they were able to earn fanother $20,000 in bonus pay. GMs were evaluated on three eriteri: (1) performance ‘st meeting profit targets, (2) customer ser ‘Yee ratings, and (3) actual store sales.2° To promote information eharing in the new environment, some marketing managers falgo experimented with a shaved incontive Personae Journal, 2, 0.6 Juve 1980, 229,208 1.70 Gest Manos system by contributing their bonuses to a pool that would be shared equally by all ‘employees in the region. This initiative was designed to promote an environment of treater cooperation and communication among employees, Expanding Information Access ‘To support the self-sufficient. team-based trganization and to facilitate the company’s ability to learn and change, access to infor- tmatian changed dramatically at Taco Bell Initial implementation of the TACO system hhad provided restaurant managers. with information about store operations, But in tho new environment, the foeus expanded to golting that same information into the hhandsoferew members actually renning the stores. There was wide agreement that the employees closest to the customer and daily ‘operations were in the best position to make full use ofthis informstion "To make information useful to TMUs, ‘Taco Bell introduced TACO IT, This new, more user-friendly computer eystem was designed to provide crow members with the Information they neoded to make decisions and take action. For example, instead of reporting a".05% mut variance” yesterday, the nystem would report that the variance was equal to 300 tacos, which was some- thing erew members eamld hoth relate to and set on, ‘The tean-based eulture end the new tech- nology system were essential for supporting ‘an empowered organization. Said one mar keting, manager, "In the old system, the crows woro afraid to make decisions because they were afraid they would get repri manded by the AGM. Now, the erews make their own decisions, For example, our erew people order the food. This is mich better hhocauso they Knew mere about what we tse daily than the AGMe and GMs. The man- ‘agers don't make tacos and they don't go in back to get boxes of food, Building an Intellectual Network ‘Tho development of en intellectual network was another initiative that Taco Bell saw as critical to its self-sufficiency and organi ational learning paradigm, This was intended to be an on-line communications system that allowed every ‘Taco Bell ‘employes to disseminate information, esk questions, get answers and perform their Jobs better. Shared data bases would be «key component of the network, incorporat- ing “best practices" information on a wide variety of subjects, The netiveri would also use expert systems such 93 the company’s Contract Authoring System. This PC-based sot of real estate contracts had been written and cleared by Taco Bell’ legal department, tnd simple rules were built inte the eystem, ‘Through the use of TACO II, senior manage ment was able to delegate greater authority, ‘while still maintaining necessary control in areas of high risk. In this way, TACO TL ‘extended the concept of safety nets from ‘measurement of customer satisfaction to include control of operations. Taco Bell expected the intellectual net: work to facilitate knowledge transfer and communication in ways that would allow the company to continue its rapid growth in POAs without a corresponding increase in bureaucracy. The intent was to use the net- work to maintain a sone of community within the burgeoning organization and to help retain the company's verbal culture. To further support this latter objective end to enhanee communications, ‘Taco Bell extended its e-mail systems snd installed voice mail and computer conferencing. Managers noted that voice mail quickly became a key component of the communica tion infrastructure, Ongoing Innovation ‘As Taco Bell managed for today, it slso or- ganized to ensure that the company would continue to innovate in the future, For ex ample, the company developed a “restauran® ofthe future” testing site near its corporate hheadquartera, Here new innovations could be developed and tested, In 1994, there were several innovations being tested at the restaurant of the future, Por example, an ‘Automated Taco Assembler capable af mak: {ng 900 tacos per hour without human a tance was expested to reduce waste, increase eansisteney and quality, and reduce kitchen labor by 16 hours per day. A Customer Activated Terminal (CAT)—a touch sereen ordering eystem would enable customers to place their orders from kiosks and roving ‘ales crews to take orders outside the walls of the physieal restaurant, Can Tuco Bell Get There From Here? 1 you wait until something te brent leat there may net be anything lft tof Jon Matin, September 1983, Jolin Martin had long been viewed a futur tic leader in the industry and the company, someone who was constantly willing to think “outside the hox" and improve things before they were broken, In his pursuit of value, ‘extraordinary convenience and accessibility, fand unparalleled customer satisfaction, John Martin was an acknowledged cham- Dion of the consumer, and it appeared thet the industry agreed when it awarded Martin the International Foodservice Manufac- ‘Tae Bll ne (1083-19) 250, turers Association's 1993. Silver Plate Foodservice Operator of the Year award, ‘Martin, however, was proud ofall that the ‘employces in the company had accomplished (coe Exhibit 7). He believed that with a clear vision and the capacity and willingness to ‘change, Taco Bell had only begun to tap into ‘available opportunities. In his words: nits more than three decades of operation, ‘Tuco Bal hn aesmplched mask Bot wo kno thatthe ber ail es ahead. Tey we fee 50 milion poor each and every weok. Dut o Wisk to bo bronder than just Tt fod Yostaurant, Inthe United Stato, there ae one bn edingocnion vr ya pre Srching i that our people are on he foreront Sth changes we are making in ox sine By being empowered to take greater owner thin. ovr. people. will rive. even greater Shamgen i dsing so not only wil me deliver Stl to our caters but il slay provide reser lve fo wr people by bong an Enrloyer of cole, Together were transform. iguhe crore and joe that pple ca haven Us indy John Martin’ vision was certain to bring about dramatiechange and progress for Taco Bell end its people. and its eustomers. Yet the year 2000 was only six short years away. Was ‘Taco Bell positioned to be able to achieve its vision of growing to $26 billion in Sales end 200,000 POs? Were the actions to date sulicient to take them there? Only time would tell, EXHTGET 7 Summary of Changos at Tuco Bell, 1980-1004 Phase 1: 1988-1988, Ceatext Phase 2: 1988-1001 Phase $: 1991-1004 Tecesion in fata Festfood market Biargine squeezed maturing; Fattle for marketshare; inductry single-digit New products Value pring strategy growth; Operating costs increase, becomes dominant. Market share falls os Mexican serment takes of ompatitars respond (continued) ‘co Delle Tire Bonds 264 EXINIBITT (Continued) Summary of Change at Taso Bal, 1069-1008 Power Principles Phase 1: 1989-1088 From regional Mexican ‘estaurant to fat food Feslaurant Ineremental process redesign ProdueVgeographica ‘expansion, Infrastructure changes; Build fst-foed band Modernizefities ‘Ad driveethrough ‘windows; Add new mens items, Avcolerate unit growth from 100 ta 240 woven per year, ses fod prepars No change Irsproved operational ‘raining and development 1No change in valuas Phase 2: 1988-1091 "From making fod to Teoding people Tnfermation-ensbled busines ‘Customer value FACT stu IcMinss and 80S; Tmnoreneed kitchen ‘capacity enhances totreat in aale Expand into new DOA, Safety nats implemented stoundcustamer value IRGMs take on more ‘ecision making within reatiurant and aasume Fespensibiity for saltiple POA More management-by. ‘excoptions Tnereate span of responsibility Recruit more skilled Hire outside industry, ‘New training progeam To londerahip ale, New compensetion and tommonetary rewerde New career paths Focoe on curtame vale as ey principle diving ‘decison making and ‘eon; Safely nets implemented ‘w provide necessary DDoundary checks Phase 1991-1994 Dominate convenience food segment Create an empowered Tearsing ongenation; Continuous Timprovernent Betend brand Ghraugh sequitone and ro Dramatieally extend POAS Tean-based processes replace esemtly ing Operational innovations, ‘og, robots, fublamer-scivated lerminal, process Tow mapring Continue ta increase “pn of responetlty, ‘Team-managed units ‘replace hierarchical restaurant level, Extend “erspowerment” ‘a ere level (Crew members trained to ‘manage stores in Voriable pay system; incentive spstems; career pathe extended Focus i on changing ‘culture and valet; ‘Baiphasize continuous ‘novation, empowerment, and learning: Sofety nets extended to provide necessary boundary systems Phase 1: 1989-1988 " Jafermation Install POS aystem ‘Total system sales grow form $700 mien tn 1983 t $1.6 billion in Net profit grows from Valse erated S78 milion Appendix A [ERHIBIT 7 (concluded) Summary of Changes at Taco Bell, 10892094 Phase 2: 1988-1001 "TACO aystem provides ‘ommunieation an ‘nfcrmation| Increased poale hour rannecton expacty by ver 54%, edhicedeastomer waiting ‘mes hy over 11%; ‘Taal mje sales grow to ‘28 bilo Nee profit grove from ‘$26 million to $181 mili ‘TACO BELL'S THREE BRANDS Brand Taco Bell ‘ennd Taco Bell was the eompany's core business and it included forthe punta af aceeee by Walch Taco Bel reached customers Gb treditional restaurants, (2) now concepts, (@) international ‘operations and (6 etal. ‘Taco Bell Restaurants ‘Once the company’s core distribution outlet, traditional restau ‘ante became Just one of any ways to reach new customers, ‘Taco Bell New Concepts Phase 3: 1991-1994 "TACO II extends accoss to nformnton and Snasteucture to Tus, Illetal network ‘Voice mail and computer conferencing famplerent e-mail Improvad eontamer ntefaction from 8.2 ‘Total system sales grow to alimost $4 billion in 1903, Netprait grows o $258 rnilion tn 198 <= TACO BELL. ‘New soneepts included non-traditional points of access such ss schoo! lunch pro- trams, cart, Express unite, Kioeka, and joint ventures with sister companies Pizza Hot and REC. PrteLoy Ine: A Sirotege Taston, 1880-1966 308 hata fastfood usors aged and had mere disposable income, hay migrated towards casual dining “Tao Bell executives saw the Chote acquisition asa natural ete in the eration ofa auperbrand as well a a nataal progression fr ls broader seta cumers, By apturing an entirely different eating oeasion (casual dining) it allowed Taco Bell to =r gco Ball planned rapid nationwide expansion for the Chevys dain, taking ito 00 restaurants with $1 lon in eales, ‘Tuco Bell International ‘Tac Dell International operated over 100 non-US. POLS in 21 countries at aco Bel Supermarket Retatl : After reviewing marketing studies which Indicated that Taco Bell had a high brand awareness among shoppers tan Doritos the company deeded ta ante ‘perme eal bas Te tompanp red ce oe ee his Geog Chee, Michigan eed abuse eee oa a test Tne Blend te mara ively reser eee Teed th 190,10 USsopermares 6 We peta FOR aes ae ‘tala yotapaer oy fr es Bl tna ren eng oui, treat om that easenid Tn Beleneetns Bynes a he FRITO-LAY, INC: A STRATEGIC TRANSITION, 1980-1986" tn the food industry eniarentoutive at Brito Lay explained, “dhe retailers are slowly becom ing moe powerf than the manufacturer. Ashi plays ou it wont be enough just fo ow our Sinn We hve to hnow tara wl The mance who are amaranth oe wil tin There le no single sustacnable competitive adoantoge tn this busines. cant think of sin ilething that cont be duplicated, What we try to dais compete with eles, We put o good mix of ‘oduct on the shelve; we os! execute our competition; and we try tobe “lue-

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