BIG DATA TO BIG PROFITS

Wisdom from a Bowl of Ramen: (Almost) Everything a Business Leader or Owner Needs to Know Can be Learned in a Restaurant

Today, I took my family to a much-heralded ramen house in Wilmette, IL. The experience was overall disappointing and reminded me that nearly all business lessons are at work in the restaurant industry. Like the famous book, “Everything I Needed to Know I Learned in Kindergarten,” almost everything a business leader or owner can be learned in a restaurant.

1. Recognize the Challenge of the Principal-Agent Problem: Our experience was marked by extremely inattentive and poor service. Probably and almost certainly the owner and chef are highly dedicated, have their mortgages tied to the business, and are probably working 80 hour weeks to make their dream come true. The service was delivered by college-aged, part-time workers, making something much below US median household incomes. The disparity is large. The owner is highly invested. Servers are poorly invested. This happens in all businesses – call centers of banks, workers at home improvement stores, and even the staff at doctor offices. It makes me wonder why poor service even happens. First, it is a manifestation of the ever-present principal-agent problem. The agent (or employee) will never be as invested as the owner and almost certainly never cares as much about the business. Why should they, if they are not sufficiently rewarded? The principal agent problem is at work in all companies and organizations. Ultimately, the principal (firm) must create economic incentives, like long-term ownership, bonuses, or commissions that tie the reward of the employees to the performance of the firm. In most restaurants, including this one, servers are not granted stock options. It also explains why so few companies have workers for decades anymore.

Lesson: How you reward, train, motivate, and direct your employees will determine how they treat your customers (and profit$). Invest in talent; train it, acknowledge it, thank it, grow it, and reward it.

On a related note, I recently visited a family-owned business that has many workers with tenures of 20 plus years. I asked the owner what he does to earn their trust and focus for so long, even when salaries might not permit higher rewards. He said, he tried to help each employee with their personal aspirations and goals. When employees had daycare issues, he hired a daycare provider for the whole business. He gives employees tickets to the Bulls and Blackhawks, because they love it and it makes them feel special. He sends them to school for training, and gives them all a holiday bonus. I suspect he is more generous than others and does more than is required or expected but for that he has a successful and growing business with scores of loyal workers. “Give, and it will be given to you.” (Saint Luke).

2. All Profits (including illegal ones) Come from Customers: There is no business that I can think of that does not involve serving a customer. Even illegal businesses are driven by demanding, loyal, and service-seeking customers. How else did the Swiss banks get so far ahead in helping the world elite hide wealth? You cannot expect a customer to overlook bad service, especially in today’s world of social media, Yelp reviews, and viral photographs. In our case, the servers ignored our table and mostly forgot us in favor of others. What is the consequence? Simple. I won’t return. I can treat my family to lots of other lunch places. No return on a business with a 20-50% margin means that lots of potential future profit is lost to competitors. Interestingly, the restaurant did this to themselves. They paid rent, marketing, and COGS to get me into the place. Now, I won’t return. No regulator, law, or competitor did this to them. Poor service is a self-inflicted wound. It is like losing serve in tennis. You did it to yourself. You can’t blame others. Service begins with recognition, respect, and then delivery of the work. Service should also include an appreciation and acknowledgement of the business.

Lesson: Unless you eat manna from heaven (which God did not allow his people to store overnight, so it even came with rules), some customer forked over part of their earnings for your service or product. See it from their eyes. Did you get them what they wanted and deserved? If not apologize, and consider an act of gratitude to win back their trust.

3. Execution Matters: Restaurants are lots of work. There is always prep work, cooking, cleaning, and more to do. Yep, it is work. That is why they pay you. However, if you cannot execute well, consider a simpler business model. Having lots of items on a menu is impressive, but really only if those can be executed well in a reasonable amount of time. Most successful restaurants and especially highly scaled ones simplify operations in the spirit and goal of executing better.

Lesson: Simplify and focus on executing core items well. Before you branch out or scale up, examine what you do well and learn to do that especially well. Put delivery metrics and profit metrics in place to track your progress. If you are struggling, attempt to do less; it is the unspoken secret to success.

The customer is King and Queen. Customers seek, remember, and like good service and care. Treat your customer (and related profit) like you want it to return.

 

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About Russell Walker, Ph.D.

Professor Russell Walker helps companies develop strategies to manage risk and harness value through analytics and Big Data. He is Clinical Professor of Managerial Economics and Decision Sciences at the Kellogg School of Management of Northwestern University. His most recent book, From Big Data to Big Profits: Success with Data and Analytics is published by Oxford University Press (2015), which explores how firms can best monetize Big Data. He is the author of the text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management through business case studies.

Professor Walker has developed and taught executive programs on Enterprise Risk, Operational Risk, Corporate Governance, Analytics and Big Data, and Global Leadership. He founded and teaches the Analytical Consulting Lab, Risk Lab, Global Lab, and Digital Lab, all very popular experiential learning classes at the Kellogg School of Management, which bring Kellogg MBA students together with corporate opportunities focused on data and strategy. He also teaches courses in risk management, analytics, and on strategies in globalization. He was awarded the Kellogg Impact award by Kellogg MBA students for excellence and impact in teaching.

He serves on the Scientific and Technical Council for the Menus of Change, an initiative led by the Harvard School of Public Health and the Culinary Institute of America, to develop healthier and more environmentally friendly food choices. He is a former member of the board of the Education and Technology Committee to the Morton Arboretum. He was a board member of the Virginia Hispanic Chamber of Commerce, where he developed support programs for Hispanic entrepreneurs and worked with US senators on US Latino matters.

You can find him at @RussWalker1492 and russellwalkerphd.com and bigdatatobigprofits.com

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By Russell Walker, Ph.D.  -      
Russell Walker helps companies develop strategies to manage risk and harness value through analytics and big data. He has done novel research in data monetization and digital disruption and advises leading firms on these topics. As Director of Experiential Learning in Analytics and Associate Teaching Professor of Marketing and International Business at the Foster School of Business, at the University of Washington, Dr. Walker is an academic thought-leader on analytics. Russell Walker has developed and taught leading executive programs on Big Data and Analytics, Strategic Data-Driven Marketing, Enterprise Risk, Operational Risk, and Global Leadership. Previous to moving to Seattle and the Foster School, Dr. Walker was Clinical Professor at the Kellogg School of Management of Northwestern University, where he founded and taught many popular courses in analytics and risk management. His is the author of the book From Big Data to Big Profits: Success with Data and Analytics (Oxford University Press, 2015) which examines data monetization strategies and the development of data-centric business models in the new digital economy. He is also the author of the award-winning text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management as a competitive advantage. Dr. Walker consults with firms on the topics of Big Data and Analytics, Data Monetization, Risk Management, and Business Strategy. Russell Walker can be reached at: russell@walkerbernardo.com @RussWalker1776 russellwalkerphd.com

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