Applebee’s Turnover Recipe

The restaurant chain segments its workforce into performance-based categories, with different retention goals for each group.

May 26, 2005

Despite the fact that John Prutsman is responsible for human resource initiatives, employment practices, performance management and succession planning for the nearly 29,000 nationwide associates of Applebee’s International Inc., he isn’t at all concerned about tracking overall turnover.

    Prutsman is far more interested in tracking turnover and retention among select segments of the workforce. His guiding principle is "Mix Management," a term coined by Applebee’s chief people officer Lou Kaucic. It boils down to the notion that not all employees perform equally--nor should they be mourned equally when they leave.

    "There is clearly a difference between losing your top player and losing a player where, from a performance perspective, you are happy the person has gone," Prutsman says. "So instead of managing turnover and giving equal value to everybody, we hold that not all turnover has equal value, and we have come up with a system that reinforces that belief."

    The system at Applebee’s doesn’t reward managers for keeping turnover low; it rewards managers for keeping turnover low among top-performing employees. Applebee’s divides its employees into three groups: top 20 percent, middle 60 percent and bottom 20 percent. Prutsman says the company doesn’t even set retention goals for the bottom 20 percent.

    In the employee groups that it focuses on keeping, Applebee’s has achieved impressive results. In 2003, the company retained 96 percent of restaurant general managers in the top two groups (that is, the top –20 percent and middle 60 percent performers). At more junior levels, Applebee’s held on to 90 percent of lower-level managers and 80 percent of the hourly employees in the desired categories.

    The system is based on a working assumption that the loss of a top 20 percent hourly employee costs the company $2,500. The loss of a middle 60 percent employee costs $1,000. But the loss of a bottom 20 percent employee actually lets the company make $500. "Our system empowers our managers to address underlying performance and competency issues while focusing retention on locking in the top 20 percent of the workforce," Kaucic says.

    Applebee’s retention program produces a positive feedback loop. With retention efforts focused on the top 80 percent of employees, many of the bottom 20 percent group will leave and be replaced by a group of new hires. Since some of these new hires may turn out to be top performers, an employee who was on the bottom rung of the middle 60 percent group might suddenly find himself in the lower 20 percent bracket unless he improves his performance. In this way, each bracket should become more competitive as time goes on.

    Strong people performance has translated into consistent growth. Applebee’s currently has about 1,600 restaurants, with 25 percent company-owned and the rest franchised. The company is in the middle of its 12th consecutive year of adding 100 stores. It has achieved consistent sales and revenue growth of 11 percent in recent years.

    Of course, to focus retention on top performers and to measure success, an organization must have a good means of tracking performance. Applebee’s developed its own Web-based software program called ApplePM (for "people management") that lets everyone from top executives like Prutsman and Kaucic to individual store managers identify their best employees and determine how well managers are doing at retaining those star players.

    The ApplePM system includes both hard data--turnover, sales and profits--as well as more subjective data points, such as customer satisfaction and performance reviews. Kaucic and Prutsman give lots of credit to ApplePM for making it possible to keep track of the metrics that let them implement their 20/60/20 approach. "We evaluate all projects on cost effectiveness, user friendliness and impact," Prutsman says. "Had tracking metrics involved a lot of manual labor, it would never have met our cost-effectiveness criterion."

    Though Applebee’s must invest a certain amount to keep ApplePM operational and add new functionality, Kaucic says the annual expenditures fall below $100,000. What’s more, since Applebee’s licenses the software to its operators, a constant revenue stream from them turns what could be viewed as a cost into an asset. Operators pay $850 the first year they adopt the system and $350 per year after that. Still, for the restaurants, Kaucic calls ApplePM "the bargain of the year." With turnover factored in, an average restaurant might have 125 different workers on its payroll in the course of a year, making the cost of ApplePM just $7 per employee the first year and less than $3 per employee in subsequent years.

    For their money, Applebee’s operators get a tool that lets them measure a dozen people metrics.

    "Most of our operators would say it has made a radical difference in how we perform our HR function, how we leverage data and how we make data-driven decisions," Kaucic says. "Our senior executives and our operators would say the ApplePM system has been a huge part of our success. It leverages hard data and provides forced rankings among a very competitive group of people. They can see how they have performed against their own goals and against their peers, and we make a big deal out of our top performers at our annual conference and quarterly meetings."

    Prutsman cites these quarterly "people metrics" meetings as being important drivers of people results. Cribbing from the format of a presentation to Wall Street analysts, Applebee’s pulls a key operator, HR partner and training partner from each of its 11 regions--33 people in all. It gives each group 10 to 15 minutes to present their critical people performance indicators of staffing, retention and turnover. Everybody uses the same scorecard and describes what has worked well in the past and what will be done the following quarter to produce even better results.

    All the other regional representatives play the role of analysts and pepper the presenters with tough questions: Why is such-and-such variable trending the wrong way? What are you doing to rectify it? What can I expect to see in terms of an improvement by next quarter?

    "This process drives accountability," Prutsman says. "Our people know that they will be standing there each quarter with their results displayed on a big screen behind them."

    The meetings don’t just promote excellence among participants who want to impress and outperform their peers; they also serve as forums for exchanging best-practice experiences.

"There is clearly a difference
between losing your top player and losing a player where, from a performance perspective, you are happy the person has gone."
--John Prutsman, executive director of field human resources at Applebee’s

    "Each market brings something to the table that they are doing to drive people-retention results," Prutsman says. "Other markets hear it and think, ‘That’s a great idea!’ So an idea that originates in Minnesota can quickly be implemented companywide." Instead of making it the responsibility of headquarters to scout out best practices and push them out to regions that must then implement untested ideas, the people metrics meetings let innovation spring up from the grass roots and spread from region to region.

    As Kaucic says, top performers get plaudits at company get-togethers. Some of the company’s most coveted awards at its annual conference go to general managers who excel at retention and development and who guide hourly workers onto the management track. But acclaim isn’t the sole reward for doing a good job at managing the workforce and dampening turnover in the top 80 percent of the workforce.

    Kaucic says operators made it clear that Applebee’s would need to link retention to compensation if the company wanted to signify that it took people metrics seriously. Accordingly, Applebee’s worked people metrics into its overall key performance indicators. Now management merit pay depends in part on retention numbers for the top 20 percent group and for new hires.

   Managers have retention targets that they are expected to meet. That means retaining 80 percent of the top 20 percent group, 70 percent of the middle 60 percent segment and none of the bottom 20 percent. There are no consequences for managers who turn over the entire bottom 20 percent of their workforce.

    Bonnie Kunkel, executive general manager of the Applebee’s in Blaine, Minnesota, is one manager who applauds the changes that people metrics have brought to her operations. An Applebee’s employee for nearly 20 years and a general manager for nine, Kunkel says the ApplePM system simultaneously increases consistency and ease of use.

    "We used to do yearly evaluations on employees’ anniversary dates, but it was hit and miss," Kunkel says. There were no standardized evaluation forms. Managers conducted interviews according to whatever system they had picked up from their predecessors. Since a single manager evaluated an employee, the same level of performance might be rewarded with a low mark from an exacting supervisor and high praise from a less demanding one.

    Under the ApplePM system, assessments are done every six months and involve a consensus assessment made by the entire management team. Managers then split the responsibility of sitting down with hourly workers to inform them of their standing, offer congratulations where appropriate, give warnings where necessary and discuss performance goals.

    Managers are also evaluated every six months. Kunkel evaluates the managers on her team, and she is evaluated by her supervisor, an Applebee’s area director. Managers can view monthly scorecards on ApplePM containing the key performance indicators on which they will be evaluated, including sales, bar sales, retention of new hires and retention of top 80 percent employees. Kunkel appreciates this transparency, and she believes that many of her fellow managers do too. "You have a chance to look at what you are doing right so that you can keep doing that, and you can see what you need to improve on," she says.

    The system may be data-driven, but that’s not to say there is no room for qualitative or intangible adjustments. "If bar sales are low and the bar manager is not doing anything to bring up bar sales, that might negatively influence his rating," Kunkel notes. On the other hand, if the kitchen manager is running a "Perfect Margarita" contest to improve alcohol sales, that might push up her ranking, Kunkel says.

    Having linked all its corporate units and many of its franchises with the ApplePM system, Applebee’s isn’t resting on its laurels. It is adding such features as a progressive discipline system, which replaces the outmoded paper version. "Managers hated to write stuff down and document discipline problems," Kaucic says. "Now they can use drop-down menus to fill in appropriate forms. Instead of poorly writing out a report, they have generic phrases that are more appropriate and keep us out of legal trouble. ApplePM makes it easier for managers to manage discipline."

    The system doesn’t just facilitate the stick side of management; it also makes it easier for managers to hand out carrots. An integrated hourly recognition system called AppleBucks lets managers give spot rewards to servers who sell the most specials in an hour. Employees can then redeem AppleBucks for bikes, cameras and other merchandise.

    "We keep looking for new ways to use this powerful system," says Kaucic. "With 1,600 restaurants, it’s not like we have one factory where I can walk around the floors. Having a good method of communication and feedback becomes critical, and that’s where a Web-based system has really helped us."