How outback steakhouse created a great place to work, have fun, and make money

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  • JOURNAL OF ORGANIZATIONAL EXCELLENCE / Autumn 2004

    2004 Wiley Periodicals, Inc. Published online in Wiley InterScience (www.interscience.wiley.com) DOI: 10.1002/npr.20023

    HOW OUTBACK STEAKHOUSE CREATEDA GREAT PLACE TO WORK, HAVE FUN, AND MAKE MONEY

    GROWTH

    When the rapid growth of Outback Steakhouse restaurants began to threatenthe foundersvision of a values-driven organization, the companys leaders em-barked on a process to infuse every one of its restaurants with a culture thathas become a hallmark in the industry. At the heart of this culture is a strong com-mitment to make Outback a great place to work, have fun, and make moneyareflection of the founders belief that employees are key to meeting the com-panys commitments to all its stakeholders. 2004 Wiley Periodicals, Inc.

    Tom DeCotiis, Chris Sullivan, David Hyatt, and Paul Avery

    Tom DeCotiis, Ph.D., is founder and CEO of DeCotiisErhard, Inc. in Colorado Springs, Colorado. Chris Sullivan is a founder and chairmanand CEO of Outback Steakhouse, Inc. in Tampa, Florida. David Hyatt, Ph.D., is vice president and a partner in DeCotiisErhard, Inc., as wellas customer leader for its work with Outback. Paul Avery started his career as a restaurant manager at Outback and was recently promoted topresident of the Casual Dining Group, which includes the Outback brand as well as four other companies.

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    23

    Outback Steakhouse, Inc., now a $3.25-bil-lion company with 65,000 employees and1,100 restaurants worldwide, began modestly inthe spring of 1988. The plan called for fourrestaurants, one for each of the founders. Theidea behind the company was to enable thefounders to run their restaurants in the mannerthey believed a good restaurant should be oper-ated, to generate enough income to fund a com-fortable lifestyle, and to have fun doing it. Afterthe first Outback Steakhouse restaurant opened,it quickly became part of the local buzz, successsnowballed, and within two years the companyhad a stable of 20 restaurants.

    Such rapid growth was evidence that cus-tomers wanted the dining experience that Out-back was providing, which the founders believed

    was a direct result of a high-quality, trained staffwho themselves found being at Outback a richlyrewarding experience. And yet success itself wasnow making it difficult to ensure that every newrestaurant could replicate the winning formulathat had brought the company this far this fast.

    From the beginning, the founders were com-mitted to growing a values-driven company witha strong culture that would enable it to attractthe best and promote from within. This strategywould have obvious advantages in an industryplagued with high turnover and all the challengesthat turnover presented to maintaining a consis-tently high quality of service, product, and cus-tomer experience. But the price tag for Outbacksrapid growth was wobble: Although the restau-rants functioned well, some were simply not as

  • JOURNAL OF ORGANIZATIONAL EXCELLENCE / Autumn 2004

    24 Tom DeCotiis, Chris Sullivan, David Hyatt, and Paul Avery

    good as the founders believed they could bethey didnt have that Outback feel.

    At this critical juncture, the companys lead-ers pondered several questions central to the fu-ture of Outback: What do we want to be andstand for? What are the keys to successfulgrowth? How do we earn the loyalty of our mostvaluable stakeholders, including employees?They recognized the need for a more explicitunderstanding and statement about what Out-back is as a company, where it is going, and howit would get there. The founders, along with De-CotiisErhard, Inc., a consulting firm that hadbeen a strategic partner with Outbacks founderssince the beginning of the company, embarkedon a process called visioneering.1 Our goals wereto (1) create a compelling story of the companysfuture that its most valuable stakeholders wouldbe proud to share and (2) to work together to in-still that story into every aspect of the company.

    A GREAT PLACE FOR ALLSTAKEHOLDERS

    One of the cornerstones of Outback was thefounders idea that a company is its people. Out-backs people are Outbackers (employees), cus-tomers, purveyors, neighbors, and partners. Thefounders wanted customers to think of Outbackas a great place to dine and spend time, whichmeant providing them high quality food for goodvalue in an environment where they felt com-fortable and valued. Quality, value, and envi-ronment all depended on other Outback peo-ple, especially Outback employees. And a placewhere employees were having as good a time ascustomers was a place that customers were likelyto return to time and again.

    What all Outback stakeholders have in com-mon is the need for a sense of place and the needto feel valued. Thus we focused the visioneeringprocess on what would be required to make Out-back a great place for all stakeholders. No oneamong the leadership team doubted that success-fully growing the company would depend on

    achieving this. And we knew intuitively that theanswers as to how to achieve it could not comefrom the companys perspective but had to reectthe perspective of each of Outbacks stakeholders.

    THE OUTBACK THEORY OF SUCCESS

    Another guiding idea that informed the vi-sioneering process was the founders theory ofhow to successfully grow a company. It is simplystated: We are a company of Restaurants, not aRestaurant Company, and focus on individuals,individual restaurants, teamwork, and success.Success of the company depends on the successof its restaurants. As illustrated in Exhibit 1, thepath to success (dened by the founders as salesand prot) starts with high quality employees whoare fully trained, who perform, t into the culture,and stay. This makes for a compelling customerexperience, and so customers come back oftenand recommend the restaurant to friends and fam-ily. In turn, this causes sales and prot to increase(success) and creates opportunity for Outbackers.The competitive key to making this happen is sta-ble quality management, that is, having a com-petent leader who develops the staff and buildsthe sales and prot of the restaurant. Thus, in thefounders minds, a company has to rst excel withemployees before it can even think about excellingwith customers or any other stakeholder.

    Considerable experience in the hospitality in-dustry told us that meeting our goals for Outbackstakeholders and having successful, profitablerestaurants could not happen in the context of highemployee turnover. Indeed, we concluded that oneof the reasons there are so few large and consis-tently successful restaurant companies is that theirleaders accept high turnover as an inevitable costof business. For example, employees have tradi-tionally been thought of as passing through the in-dustry on their way to a real career. The foundersof Outback took a contrary position: The industryis a viable career, and high turnover is unaccept-able. Rather than being nice to have, low turnoveris one of two strategic imperatives that have re-mained unchanged from the beginning of the com-pany. (The other is quality, particularly as it relatesto obtaining the best raw ingredients for the foodserved in the restaurantsfor example, our parme-san cheese comes from Parma, Italy; our beef is

    What all Outback stakeholders have incommon is the need for a sense of place and

    the need to feel valued.

  • How Outback Steakhouse Created a Great Place to Work, Have Fun, and Make Money

    JOURNAL OF ORGANIZATIONAL EXCELLENCE / Autumn 2004

    25

    PRINCIPLES AND BELIEFS

    The story of why Outback is a great place for eachof its stakeholders and how these goals are to beachieved is told in the Principles and Beliefs, a51/2-page proprietary document created in 1990 asa result of the visioneering process. As an elabo-ration of the values of the founders, this documentdescribes the culture that all Outback leaders areexpected to create and maintainwithin the restau-rants and throughout the company. This responsi-bility is summarized as leaders eat last, meaningthat partners are expected to put the needs of Out-backers, customers, suppliers, and neighbors beforetheir own needs.

    An Overview. The Principles and Beliefs doc-ument presents a vivid description of how toachieve success through people. It states the com-panys purpose as being to teach Outbackers toexercise good judgment and live the Principlesand Beliefs. It articulates ve founding princi-pleshospitality, sharing, quality, fun, andcourageand six dening beliefs. The rst vebeliefs, which are directly derived from the

    USDA Choice or higher; the chocolate for ourchocolate sauce is imported from Perugia, Italy.)

    Rather than make low Outbacker turnover anexplicit human resource objective, the leaders sawthe Outback culture as the means to attract, re-tain, and energize high quality Outbackers, a cul-ture that emphasizes the ideal that each Outbackrestaurant is compelling and different, a greatplace to work. Compelling means that people inthe labor market tapped by the company really,really want to work for Outback. Differentiatingmeans that whatever Outbackers derive from theirexperience of Outback cannot be found with anyof its competitors. The visioneering team wantedto provide compelling and differentiating answersto the question Why should I work here?

    We also recognized that because growth madeit impossible for the companys leaders to main-tain hands-on involvement with every restaurant,culture was the key to infusing the founders val-ues into the day-to-day operations at each restau-rant. Here again, leaders within each restaurantwere vital to nurturing and sustaining the desiredculture and the values embedded in it.

    Exhibit 1. The Theory of Outback Steakhouse

  • JOURNAL OF ORGANIZATIONAL EXCELLENCE / Autumn 2004

    26 Tom DeCotiis, Chris Sullivan, David Hyatt, and Paul Avery

    founders personal values, also pay homage to thefact that successfully growing a company requirescommitted and enthusiastic people who feel theyare valued and belong:

    We believe that if we take care of Our Peo-ple [Outbackers, customers, purveyors,neighbors, and partners], then the institutionof Outback will take care of itself.

    We believe that people are driven to bepart of something that they can be proudof, is fun, values them, and that they cancall their own.

    We believe in the sanctity of the individ-ual, the value of diversity, and in treatingpeople with kindness, respect, and under-standing.

    We believe that caring for people indi-vidually results in their emotional in-volvement in Outback.

    We believe in working as a team: havingshared goals and a common purpose, serv-ing one another, and supporting the suc-cess of the team.

    When an Outbacker says the phrase peoplerst, which has become part of the vocabularyof Outback, it is immediately understood in termsof these beliefs. The phrase is given even moreanimation by the Principles and Beliefs descrip-tion of Outbacks environment as being tough onresults, but kind with people.

    The Principles and Beliefs document articu-lates the key goal for each of Outbacks stake-holders:

    Outbackers: A great place to work, havefun, and make money

    Customers: Favorite place to eat, drink,relax, and be with friends

    Purveyors: A great customer and sourceof comfort and pride

    Neighbors: A valued corporate citizenand neighbor

    Partners: A superior nancial and emo-tional investment opportunity

    The companys commitments to each stake-holder group are spelled out in detail.

    There is nothing in the Principles and Beliefsthat speaks to industry rankings or a comparativestandard of success, such as being best in class.Rather, words such as belonging and indulgenceare routinely used as standards for taking careof our people.

    The pages in the Principles and Beliefs that re-late to Outbackers were later turned into an Out-backer positioning statement, shown in Exhibit2, which denes Outbacks culture from an Out-backers perspectivethe Outbacker Experi-enceand include the nine commitments thecompany makes to all Outbackers. Given the basicbusiness beliefs that (1) employees are the faces,hearts, and hands of the consumer brand and (2)growth in sales and prot is the result of havingemployees who are passionate about taking careof customers and one another, it is not surprisingthat the Outbacker experience aspects of the Prin-ciples and Beliefs have received the most attentionover the years. The company has focused on earn-ing the trust of Outbackers and, through them, thetrust of its customers.

    Living the Principles and Beliefs. We werenot exactly sure what to do with the Principlesand Beliefs at the time the document was created.Over the years, however, it has evolved into the op-erating manifesto, constitution, map to success,and conscience of the company. The challenge forthe leadership team has been not only to live thePrinciples and Beliefs but also to build them intohow the company conducts its business, recog-nizing that the challenge of moving the reality ofOutbacks stakeholder experiences closer to thestandards set forth in the Principles and Beliefswill never end. Three primary avenues have beenespecially helpful for embedding the Principlesand Beliefs into the fabric of the organization: ed-ucation, integration, and measurement.

    EDUCATION

    There is a denition of being a leader that is stillevolving within Outback and gaining credencewith use: A leader is someone who creates a cul-

    The company has focused on earning the trust of Outbackers and, through them,

    the trust of its customers.

  • How Outback Steakhouse Created a Great Place to Work, Have Fun, and Make Money

    JOURNAL OF ORGANIZATIONAL EXCELLENCE / Autumn 2004

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    such as leading by example are brought to life.The principle of Sharingwhich is also one ofthe nine commitments to Outbackersis stronglyreinforced by teaching managers that it is theteam that achieves successsales and profitand thus responsibility, authority, and accounta-bility are to be shared, as are the fruits of suc-cess. Building a strong team also means trainingand developing Outbackers and providing ad-vancement opportunities within the restaurantand within the company.

    Regional Walkabouts. While the Walkaboutin Tampa has been, and continues to be, an inte-gral component of transmitting the culture tomanagers, we also felt the need to share the re-sponsibility for teaching the culture and to carrythe cultural education into the eld. In 1998 weintroduced Regional Walkabouts, in which thearea Joint Venture Partner (akin to a regional man-ager who also has an ownership and partnershiprole in the business) teaches the Principles andBeliefs. True to the Outback culture, these re-gional meetings have taken on a life of their ownand continue to evolve in response to the style

    ture that earns the loyalty of enthusiastic and com-mitted Outbackers who achieve results. Thus wefocus heavily on educating the companys lead-ers and managers in the meaning of the Princi-ples and Beliefs and how to provide a positiveOutbacker experience in their restaurants.

    The Walkabout. One of the most effectivemeans has been what we call a Walkabout. This isa meeting held ten times a year in Tampa, Florida,meant to introduce the spirit of the Principles andBeliefs to restaurant leaders and managers, whoare critical to creating the Outbacker experiencein each restaurant. The Walkabout is special be-cause it is conducted by the founders, president,and other leaders of the company. During its thir-teen-year history, only one founder has evermissed a Walkabouthe became ill and the restof the founders sent him home because he wascontagious!

    Managers are taught that if they want to besuccessful, they must be able to develop a teamthat lives the Principles and Beliefs as near toperfection as possible, and they will be measuredon their ability to achieve this. In this way, clichs

    Exhibit 2. The Outbacker Postioning Statement

    There are no probationary Outbackers. Welcome to Outback and our team of Outbackers.

    We keep our nine commitments to you, guided by our ve principles of Hospitality, Sharing, Quality, Fun, and Courage.

    Our purpose is to prepare you to exercise good judgment and live our Principles and Beliefs.

    Because of our Serious Food, Concentrated Service, and No Rules, you are able to approach our Customers

    with condence and a sense of ownership while demonstrating our principles of Hospitality and Quality.We want you to be proud to be an Outbacker.

    Outbacks environment requires people to be tough on results, but kind with people.

    It is an environment where managers are focused on serving Customers and supporting their Outbackers.

    Outbackers know they are valued and that situations special to them will be handled with respect and concern.

    How we care for you is embodied in the details of our nine commitments to all Outbackers:

    Clear Direction, Preparation, Involvement, Affecting Ones Own Destiny, A Fair Hearing, Sharing inSuccess, Making a Commitment, Having a Good Time, and Compassion.

    Outbacks commitments to you and your commitments to Our People complete a circle of success that ensuresthe institution of Outback can take care of itself. Living our Principles and Beliefs and delivering on our com-

    mitments ensures that Outbackers know Outback is a great place to work, have fun, and make money.

  • JOURNAL OF ORGANIZATIONAL EXCELLENCE / Autumn 2004

    28 Tom DeCotiis, Chris Sullivan, David Hyatt, and Paul Avery

    and teaching skills of the JVPs. JVPs also usethese meetings to provide teaching opportunitiesfor managing partners, managers, kitchen man-agers, and other Outbackers ready for this kind ofchallenge.

    Education in the Restaurants. Educationwithin each restaurant reflects the style of therestaurants managing partner but with the samegoal companywide: To introduce the Principlesand Beliefs as the code by which an Outbackerslife in the restaurant is governed. Some elementscommon to training in all restaurants include thefollowing:

    Introduction of the Principles and Beliefsin the orientation for new hires

    Use of the language of the Principles andBeliefs every day in the restaurant

    Sharing key ideas in Alley Rallies, whichare preshift meetings to energize and focusOutbackers

    Monthly directionals with Outbackers andmanagement

    Communication boards and other practices

    Because Outback believes in the sanctity ofthe individual, we allow considerable exibilityin the how of Outbacker education as long as ourmessage is communicated and behavior is con-sistent with the intent of the Outback vision.

    INTEGRATION

    Integration means stamping all procedures, in-cluding HR practices, with the meaning of thePrinciples and Beliefs. Outback has no recruitersand no human resource department. In effect,human resource management is an operating dis-cipline of every manager in the company, and thecompany provides them tools and training to ex-ecute these responsibilities.

    Because managers are encouraged in thought-ful experimentation to nd better ways of strength-ening the Outback culture in their restaurants, thereare probably countless examples of how the day-to-

    day operations reect the Principles and Beliefs.The practices discussed below, which are now im-plemented throughout Outback, provide just a fewexamples of bringing the Principles and Beliefs tolife to create a positive Outbacker experience.

    Hiring/Selection. A key to making Outback agreat place to work is hiring the right people. Oneof the things we recognized early on is that youcannot send turkeys to eagle school: Smart lead-ers do not hire marginal employees and expect themto be able to keep the commitments of the com-pany to customers or to remain very long with thecompany. If you start with the right people and pro-vide a positive employee experience, turnover stayslow. Thus, a rigorous employee selection processwas developed in the early years of the companythat is rooted in the Principles and Beliefs.

    Outbacks selection process for hourly andmanagement Outbackers is proprietary; however,we can share some of the details here about thesteps involved in the hiring process:

    1. All applicants are given a realistic job pre-view that shares both the benets and theresponsibilities of working for Outback.We explain to applicants that being an Out-backer means taking care of others, andwe tell them how they will be held ac-countable for that.

    2. We share a document, called a Dimensionof Performance, which provides detailedexamples of the kinds of behavior ex-pected of Outbackers and how those be-haviors are tied to the vision of Outback.This is a candidates rst exposure to ourvision. (At this point, some candidateshave withdrawn from the process becausethese dimensions set a very high standard.)

    3. When candidates agree to move forward inthe process, they are asked to complete anapplication. The information they provideis reviewed with an eye toward determin-ing if the candidate can perform the job, tinto the Outback culture, and stay with thecompany.

    4. Successful applicants are assessed for theircognitive ability, personality, and judgmentthrough a series of tests that have been val-idated against existing Outbackers whohave been successful in the company.

    One of the things we recognized early on is that you cannot send turkeys

    to eagle school. . .

  • How Outback Steakhouse Created a Great Place to Work, Have Fun, and Make Money

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    The company has developed numerous toolsand processes to support the development and ad-vancement of both hourly and management Out-backerstoo many to mention here. But we citea few examples below:

    Principles and Beliefs Actions to Success:This formalized development tool is com-pleted with each manager and reviewedevery six months to ensure that each mem-ber of management has a developmentplan, consistent feedback, and a clear un-derstanding of what needs to be addressedto move to the next stage in development.

    BYTE: In 1999 Outback developed andimplemented a series of in-house contin-uing education courses for members ofmanagement. Topics range from the ba-sics of communication to advanced nan-cial management.

    Regional Walkabouts: As mentioned ear-lier, these training meetings provide man-agement personnel the opportunity toteach the Principles and Beliefs to otherOutbackers.

    Partner Intern Program: To be promotedto managing partner, each candidate mustcomplete two internships to demonstratereadiness. During the internship, the can-didate, with oversight from the restaurantsmanaging partner, takes over all respon-sibilities for running the restaurant.

    Career Portfolio: This on-line database al-lows Outbackers to keep track of their de-velopment experiences and identify areaswhere they need more experience in orderto advance.

    The company is very forthright with managerswho do not appear to have the potential for pro-gressing further in the company, and many of theseindividuals opt out voluntarily. This inducedturnover accounts for about half of Outbacks an-

    5. Applicants who pass these tests are inter-viewed using questions that probe not onlytheir experience but also their orientationtowards aspects of the Outback culture, in-cluding service mindedness, hospitality,teamwork, and ability to think on their feet.

    In addition to the obvious need to screen can-didates, the process seeks to ensure that thosehired have a high potential for being developedfor future roles in the company.

    Development and Promotion. Even beforethe visioneering process, we understood that thebest way to grow a values-based company is fromthe inside out. This includes relying as little aspossible on external hires and as much as possi-ble on developing hourly employees into the lead-ers and managers of the company. One of the ninecommitments to Outbackers, Affecting OnesOwn Destiny, reflects this promise to provideemployees opportunities based on their perfor-mance, results, and the companys success. As aresult, more than 97 percent of all Outback man-agers are promoted from hourly employees; andthere are many instances of managing partners(the leaders of restaurants) who started as linecooks, servers, or dishwashers. One of the majorfactors in any operating managers opportunity tobe promoted is whether he or she has a record ofdeveloping other Outbackers: no development, nopromotion.

    Although roughly 30 new Outback Steakhouserestaurants open each year, low management andpartner turnover, along with more than 700 exist-ing restaurants from which to draw talent, meansthere are fewer openings than Outbackers desiringto ll them. Outback takes promotion seriously,does it carefully, and has charted a reasonably spe-cic career path for individuals who desire to be-come a partner. A typical path includes the fol-lowing experiences:

    1. Hourly2. Key (front of house) or assistant kitchen

    manager (back of house)3. Manager-in-training4. Kitchen training (6 months minimum)5. Kitchen manager6. Manager7. Partner

    Outback takes promotion seriously, does itcarefully, and has charted a reasonablyspecic career path for individuals who

    desire to become a partner

  • JOURNAL OF ORGANIZATIONAL EXCELLENCE / Autumn 2004

    30 Tom DeCotiis, Chris Sullivan, David Hyatt, and Paul Avery

    nual management turnover, which is one of thelowest in the industry.

    Rewards. As mentioned earlier, Sharing theFruits of Success is one of the founding princi-ples of the company as well as one of the nine com-mitments to all Outbackers. The companys mon-etary rewards reect this principle through threesignicant programs: the STARS Program, the Out-back Trust, and the Managing Partners Program.

    The STARS Program. The STARS program re-wards growth in sales and prots in the restaurantby paying out a percentage of the increase to thehourly Outbackers who made it happen. Using aproprietary program, sales increases are exam-ined each quarter and compared with other fi-nancial benchmarks to determine the amount ofthe STARS payout. It is not unusual for hourlyOutbackersfrom bussers on upto receive a$500 check as their STARS quarterly bonus.

    The Outback Trust. The Outback Trust wascreated to provide money to Outbackers in need,a reflection of compassion, one of the nine com-mitments to Outbackers. Each year, every restau-rant, managing partner, and member of man-agement contributes to the trust fundas domany of Outbacks purveyorswith the goal ofhaving the fund become self-funding over time.In times of crisisfires, hurricanes, a death inthe family, the death of an Outbackermoneyis paid out quickly to those in need. An exam-ple that strikes home for two of the authors con-cerns one of our teammates at DeCotiisErhard,whose house burned to the ground. Within twodays of a casual mention of this event to thePresident of Outback (it simply came up in con-versation), our teammate received a check fromthe Outback Trust.

    The Managing Partner Program. The Man-aging Partner Program is unique in the restau-rant industry. In effect, it provides individualsthe opportunity to own their own restaurant andstill be part of a larger enterprise. Each manag-ing partner buys a 10 percent share in the cashflow of the restaurant he or she leads. Over time,

    managing partners who meet certain criteria areeligible to buy additional shares in their restau-rant or shares in other restaurants. This program,which has often been copied by other companiesbut rarely succeeds elsewhere, encourages thepartner to think and behave as an owner with along-term perspective.

    Decision Making. Another founding be-liefWe are a company of Restaurants, not aRestaurant Company, and focus on individuals,individual restaurants, teamwork, and suc-cessis expressed through the decision-mak-ing process. When it comes to designing andimplementing systems, everything is done fromthe restaurant or business unit up. Systems arenever installed until approved by the Outback-ers in the restaurants. In this way, we learn fromthe front-line experience of the Outbackers, andthey have the satisfaction of giving input to de-cisions that will affect the way they do theirwork. Over the years, this approach has savedthe company millions of dollars.

    Within the framework of the Principles andBeliefs, managing partners are afforded a greatdeal of latitude in restaurant-level decision making.For example, in meeting the commitment to Out-backers of Having a Good Time, each partnerand management team is encouraged to make theOutbacker experience as positive as possible whilestill running a successful business. The resultsrange from organized bowling parties to regionalsoftball or volleyball tournaments and Pearl Jammoments (in which the kitchen staff is allowed torock to Pearl Jam while keeping ticket times withinspec). At the end of the day, it is about what worksin that restaurant with that partner and his or herpeople. There is no guidebook or policy manualon what is and is not allowed, aside from the Prin-ciples and Beliefs and a very clear expectation thatall Outbackers will be treated with respect andmade to feel they belong and are welcome.

    MEASUREMENT

    The company implemented Outbacker measure-ment processes that are designed to assess howwell it is keeping its commitments to employ-ees. Outback is not measurement crazy, but thefew measures that are used are closely moni-tored. For example:

    When it comes to designing andimplementing systems, everything is donefrom the restaurant or business unit up.

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    Quality of the Environment. The annual Out-backer Experience Survey includes an item, ThePrinciples and Beliefs are practiced in this restau-rant, for which Outbackers register their agree-ment with the statement using a six-point scale,where 1 means strongly disagree and 6 meansstrongly agree. Two groups of restaurants wereidentied based on the degree to which the Prin-ciples and Beliefs are practiced: high-practicingrestaurants, in which 43 percent or more of the re-sponding Outbackers rated the survey item a 6, andlow-practicing restaurants, in which 24 percent orless of the Outbackers rated the survey item a 6.

    Three aspects of the Outbacker experiencetheft, treatment of Outbackers, and offensive lan-guageare considered to be very important toOutbackers in defining the character of theirrestaurants environment. In the annual survey,Outbackers rate these items using the same 6-point scale. For each of these aspects of environ-ment, the responses from the high-practicingrestaurants were compared with those from thelow-practicing restaurants.

    The results, shown in Exhibit 3, were com-pelling. Outbackers in restaurants that practicedthe Principles and Beliefs were far more positiveabout their environment than Outbackers in restau-rants that did not practice the Principles and Be-liefstwice as positive about how well Outback-ers were treated, two-thirds more positive aboutthe absence of theft, and a third more positiveabout the absence of offensive language.

    The Value of a Quality Hire. Because thecompany believes that quality people are the rstingredient in the recipe for success, early on it de-veloped hourly and management hiring proce-dures (discussed earlier) that reected the valuesand performance style inherent in the Principles

    The Outbacker Experience Survey is anannual measure of the quality of the Out-backer experience, designed explicitly togauge the degree to which the nine com-mitments made to Outbackers are beingmet and how well the Principles and Be-liefs are practiced within a restaurant. Theitems in this survey are compiled into anOutbacker Experience Index, a standard-ized measure of the degree of improve-ment or decline in the quality of the Out-backer experience.

    Accurate measures of turnover have beendeveloped and are routinely discussed, asare the reasons why desirable Outbackersmay be leaving the company.

    The measures are also used to assess a leaderscompetence at living the Principles and Beliefsand developing Outbackers. These are pivotal fac-tors in determining the advancement opportunitiesfor a leader at Outback; a managing partner whobuilds his or her restaurants sales but does notbuild the staff and prepare them for more re-sponsibility will not be promoted.

    PROVEN VALUE: THE RIGHT PEOPLE IN ASTRONG CULTURE

    Outback has spent millions of dollars imple-menting the Principles and Beliefs and attractingand retaining Outbackers who want to live them.Has all of this effort has been worth the time andexpense? Does practicing the vision embodied inthe Principles and Beliefs have a measurable im-pact on the Outbackers experience? To nd out,we performed an analysis based on the annualOutbacker Survey in 2001.

    Exhibit 3. The Impact on Outbacker Experience of Practicing the Principles and Beliefs

    POSITIVE OUTBACKER PERCENT DIFFERENCERESPONSE TO RESTAURANT BETWEEN HIGH AND LOWENVIRONMENT PRACTICE RESTAURANTS1

    Theft by Outbackers is not a problem in this restaurant. 66%The Outbackers in this restaurant treat one another well. 109%There is no offensive language in this restaurant. 34%

    1 Percent difference = (HL) L, where H is the group that has high practice of Principles and Beliefs, and L is the group that has low practice of Principles and Beliefs.

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    32 Tom DeCotiis, Chris Sullivan, David Hyatt, and Paul Avery

    and Beliefs. Prior to 2001, managing partners inthe restaurants had latitude about whether to usethe tools designed by the company to help themhire quality people and implement the Principlesand Beliefs. So the second area we investigatedin 2001 was the question Does using the disci-pline of selection make a difference?

    For this analysis, we divided restaurants of ap-proximately equal sales volume into two groups:high compliance with the selection procedures,in which more than 90 percent of all hourly Out-backers were hired to the standards of the selec-tion process, and low compliance with the proce-dures, in which 10 percent or less of Outbackershired were tested using the selection standards.These two groups were then compared on the basisof their turnover rates and their total controllableincome, an important measure of restaurant op-erating performance.

    The results, shown in Exhibit 4, are dramaticby any standard. Hourly Outbacker turnover inthe low-compliance restaurants was 124 percenthigher than in the compliant restaurants. Thevalue of low turnover was at least $23,750 in ad-ditional profit for each of the high-compliancerestaurants (each lost Outbacker costs a mini-mum of $750 in replacement costs). A numberof this size gets a lot of attention. For one thing,this cost is a totally avoidable hit to protabilityand inuences a restaurants total controllable in-come, which was on average $109,221 higher inthe high-compliance restaurants. A second criti-cal consideration is that high turnover precludesbuilding a strong culture.

    Thus, it is fair to conclude that the impact ofhiring eagles is substantial. As a result of this dis-covery, Outback made the companys hiring pro-cedures a required operating discipline in everyrestaurant. The use of these tools is no longer dis-cretionary, and a restaurant leader can lose his orher job for failing to use the procedures.

    Hiring the Right People and Living the Prin-ciples and Beliefs. Outbacks theory of success isthat you hire the right people and take care of them.So, what is the measurable value of having goodpeople in a strong culture? To understand the com-bined impact of living the Principles and Beliefs(as measured by the survey item described earlier)and complying with the companys selection sys-tem, we divided the restaurants into two groups:one group that had High Compliance with the se-lection system and High Practice in the Principlesand Beliefs, and a second group that had LowCompliance with the selection system and LowPractice in the Principles and Beliefs. We thencompared these two groups on the basis of theirOutbackers perceptions of three environmentalfactorstheft, honesty, and offensive languageand on two measures of restaurant performanceemployee turnover and total controllable income.The results are shown in Exhibit 5.

    Relative to the Low-Compliance/Low-Practicegroup, the High-Compliance/High-Practice groupof restaurants had a noticeably more positive envi-ronment, had half the average Outbacker turnover,and produced higher total controllable income. Wewere convinced that the results of these analysesconrmed the Outback formula for success.

    Exhibit 4. The Impact of Compliance with Outback Hiring Standards

    DIFFERENCE BETWEEN HIGH RESTAURANT PERFORMANCE AND LOW COMPLIANCE RESTAURANTS

    Average Turnover Rate Percent Difference 124%1

    Average Added Value per restaurant $23,250per year from low turnover

    Average Total Controllable Income Percent Difference 13.5%2

    Dollar Difference $109,221

    1 (L H), where L is the group that has low compliance with hiring standards, and H is the group that has high compliance with hiring standards.

    2 (H L)

    3 (H L)

  • How Outback Steakhouse Created a Great Place to Work, Have Fun, and Make Money

    JOURNAL OF ORGANIZATIONAL EXCELLENCE / Autumn 2004

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    erational complexity: The company has been ex-panded to a total of eight restaurant companies, in-cluding the original Outback Steakhouse brand.Combined, these companies will open 100 domesticrestaurants per year for the next few years and thenramp up to 150 new openings per year by 2006.

    The new companies will open more restau-rants than the mature companies, with much oftheir leadership being sourced from the maturecompanies. This migration of talent is well un-derway and creates significant opportunity forOutback employees. The companys leaders,meanwhile, have begun to address the newest chal-lenge this growth presents: how to maintain the en-vironment and culture of Outback while enablingthe new companies to develop their own kindredyet unique cultures.

    THE BOTTOM LINE

    Outback has acted on what many companies rec-ognize: Quality employees and low employeeturnover are the keys to success. Starting with adetailed statement of the intended Outback expe-rience, the company added rigorous hiring stan-dards, a goal grounded in the needs of its Out-backers, and an audacious standard of leaderaccountability for taking care of people. To aperson, the leadership team (it is the same onethat created the Principles and Beliefs) believesthat much of the success of the company is di-rectly attributable to implementation of the Prin-ciples and Beliefs.

    The company is still in a fast-growth mode, butwith an additional layer of organizational and op-

    Exhibit 5. The Combined Impact of Compliance with Outback Hiring Standards and Living the Practicesand Beliefs

    PERCENT DIFFERENCE BETWEEN HIGH AND LOW

    COMPLIANCE/PRACTICE RESTAURANTS

    Positive Outbacker Response to Theft by Outbackers is not a Restaurant Environment problem in this restaurant. 41%1

    Outbackers in this restaurant are honest. 50%1

    There is no offensive language in this restaurant. 61%1

    Restaurant Performance Average Employee Turnover 100%2

    Average Total Controllable Income 17%3

    1 (HHLL) LL, where HH is the group that has high compliance with hiring standards and high practice of Principles and Beliefs, and LL is the group that has low

    compliance with hiring standards and low practice of Principles and Beliefs.

    2 LL HH

    3 HH LL

    NOTE

    1. Outback Steakhouse, Inc. and DeCotiisErhard, Inc. have been strategic partners since the founding of Outback in 1988. It has been a partnership in the best sense

    of the word, with considerable exchange of learning and opportunity. All of the processes alluded to in this article, from creating Outbacks vision to how its em-

    ployees are hired and developed, are products of DeCotiisErhard, Inc. and have been developed in cooperation with Outback Steakhouse, Inc.