Authors: Tom F. Tan (University of Pennsylvania) and Serguei Netessine (INSEAD)
Publisher: INSEAD Working Paper No. 2012/58/TOM/ACGRE
Date Published: May 2012
Making optimal decisions about staffing levels and calculating how large a workload employees can handle without compromising performance is a crucial issue for managers — and has been for more than a century, going back to the studies of Frederick Winslow Taylor and other early efficiency experts. But finding ways to increase productivity is especially necessary in today’s shaky economy, one in which many companies are still reducing staff to curb costs or are extremely reluctant to add employees even if business is on the upswing. In particular, decisions about workloads are critical for those running a retail store, call center, or other type of service-related business, where demand fluctuates significantly throughout the day and success rests largely on pleasing customers.
This paper, which examines the relationship between employee workload and performance at several locations of a large restaurant chain, points out areas for improvement but also warns anew that workload increases can prove counterproductive when certain limits are reached. It identifies a saturation point at which any increase in hourly workload leads to a decline in employee performance (and hence sales). But because the employees in this study generally fell well short of reaching that point, the authors show that, counterintuitively, the restaurant chain could reduce its staff (and cut labor costs by about 20 percent) while significantly increasing sales (by about 35 percent).
The restaurant industry employs about 13 million people in the United States, or about 10 percent of the total workforce. Since the number of diners interacting with waiters and waitresses can fluctuate wildly (from busy Saturday nights to downtimes during afternoons), the restaurant setting enabled the authors to analyze how changes in workload affected servers’ performance. And there’s ample room for improvement: Prior studies have shown that employee productivity in the food service industry is only half that achieved in the manufacturing sector.
Servers have a significant impact on both guests’ satisfaction and a restaurant’s profit margin. According to a study by the National Restaurant Association, diners complain far more frequently about service speed (such as long waits to pay the bill) and rude or inattentive staff than they do about food or ambiance.
To maximize sales, restaurants typically train their servers in up-selling and cross-selling techniques, to encourage customers to order additional items like appetizers, desserts, and high-priced drinks. Research has shown that diners are more likely to buy additional items when their server suggests doing so.
The authors obtained transaction data from five casual, family-style restaurants operated by a chain in the suburbs of Boston. They studied data from August 2010 to June 2011, including information about sales, party size, gratuities, when each service began and ended, and the identity of the server. To reduce the impact of outliers such as private banquets or big parties, the authors dropped the checks that were in the day’s top and bottom 7.5 percent. They also controlled for fluctuations in demand.
On average, the authors found, each meal lasted about 47 minutes, generating total hourly sales of a little more than $450 for each restaurant. About 26 diners entered each restaurant per hour, and each establishment had almost six servers working per hour, resulting in an average hourly workload of 4.3 diners per server. When the overall workload was low, an increase in customer traffic led to higher server performance, in terms of more sales per customer on an hourly basis, the authors determined. The pickup in traffic reduced the servers’ idle time, which would otherwise be spent in non-selling activities such as folding napkins or talking with colleagues. But the increase in activity still left the servers with enough time to interact with customers and increase their spending via suggestive selling strategies.