True to the company’s philosophy of proactive improvement, Wendy’s Balanced Scorecard adoption is all about enhancement. Its results are all about extraordinary performance — at a time of industry saturation, unprecedented losses, and consumer malaise. For Wendy’s International, one of the world’s largest restaurant operating and franchising companies, the commitment to continuous improvement was nothing new. So in 2000, when Wendy’s board charged new CEO Jack Schuessler with creating a new strategic plan, turning to the Balanced Scorecard was only natural.
Schuessler and his team saw in the BSC a way to measure intangible assets like human capital and customer focus. More important, it turns out, by providing a consolidated process for tracking strategically relevant data, the BSC has helped the fastfood giant gain ground — in innovating new products, boosting customer satisfaction, and maintaining operational excellence. While sluggish growth and competition from new quarters trounces bottom lines across the fastfood industry, Wendy’s today is in the enviable position of attracting new customers in droves. With $9. 4 billion in 2002 sales, Wendy’s International — the umberthree burger chain after McDonald’s and Burger King — encompasses more than 8,800 restaurants and three brands throughout 26 countries: Wendy’s, Tim Hortons, and the recently acquired Baja Fresh Mexican Grill. At Wendy’s North America, the traditional emphasis on burgers was recently expanded to include sophisticated, freshly made salads. Tim Hortons, a largely Canada-based chain, offers coffee and baked goods, along with soups and sandwiches. Baja Fresh, a California-based chain, leads the emerging fast-casual “Fresh Mexican” restaurant segment. Making Good Performance Even Better No ? ancial crisis or other burning platform precipitated Wendy’s adoption of the BSC in the fall of 2000. Performance was sound, shareholders relatively content. But relentless competition and shifting consumer tastes in a maturing industry — and one plagued by chronically high turnover — made being attuned to consumer trends and operational performance ever more imperative. In such an environment, the ability to track performance in every key area is absolutely critical. The BSC was introduced as an enhancement tool for a company already well grounded in operational excellence and strategy execution.
In addition, the company sought to bring together all of its brands under one strategic plan. “We realized that the ways of measuring key metrics throughout the organization could be improved,” remembers John Barker, Wendy’s senior vice president of investor relations and ? nancial communications. In fact, several executives had already been using the BSC within their individual departments, making it the logical tool for developing and implementing the new strategic plan. Schuessler and CFO Kerrii Anderson launched the planning process by forming a Strategic Planning Council made up of 13 of the company’s seniormost executives.
During Council sessions, Anderson introduced the executives to the BSC by having them identify the major elements of focus within their own divisions and then look at how those activities tied to the overall strategic plan. After several months of dialogue, the Council had crafted BSCs for its then two major business divisions (Wendy’s and Tim Hortons) as well as for key departments. Wendy’s North America’s 1,180-plus companyoperated restaurants are managed within the BSC framework. Wendy’s Balanced Scorecard Wendy’s seeks to create value across four basic strategic themes: operational excellence, customer intimacy, product innovation, and ommunity involvement. But it’s within operational excellence and customer intimacy that Wendy’s BSC has had the greatest impact thus far. Wendy’s corporate BSC comprises ? ve perspectives: people, customers, ? nancial, operations, and corporate. People measures include retention, diversity, bench strength, and succession planning. Wendy’s customer perspective measures restaurant attributes and market share. On the ? nancial side, measures include revenue growth, EBIT, earnings per share, market capitalization, and return on invested capital.
Under operations, the focus is on capital reinvestment, sales growth, restaurant evaluations, and restaurant attributes. Corporate measures include G&A as a percent of revenue, growth, processredesign bene? ts, and percent revenue/ income from mergers and acquisitions. Departing from the traditional strategy map, Wendy’s instead chose to depict its strategic objectives with an oval graphic that shows the company’s themes, core values, vision, and, at its center, mission. (See Figure 1. ) “Maximize shareholder value” surrounds everything.
All rights reserved. This article is made available to you with compliments of Harvard Business School Publishing in conjunction with APQC. Further posting, copying , or distributing is a copyright infringement. Figure 1. Wendy’s Alternative to the Strategy Map Maximize THEMES Operational excellence People Financial planning and reporting CORE VALUES Technology Leadership VISION Corporate process change Integrity Customer satisfaction MISSION To deliver superior quality products and services for our customers and communities through leadership, innovation, and partnerships
People focus we do Innovation of core business quick-service restaurants to their own kitchens for after-hours meals. In response, Wendy’s created its late-night program. The company expanded store hours, beefed up staf? ng where necessary, and improved the lighting in its parking lots. The result? More than 20% growth in its late-night business for four years running. Although the program was instituted before the corporate BSC, Wendy’s scorecard has helped the company keep close tabs on the program’s effectiveness.
The company’s recent acquisition of Baja Fresh, which features fresh, healthy foods made from scratch, is one example of the company’s ability to stay ahead of the curve; already it is the fast-casual segment leader. Wendy’s recent foray into gourmet salads with an ethnic ? avor — the result of two years of research — catapulted its share of the fast-food salad market to 34% and helped attract new customers in a saturated market. Wendy’s is able to make these kinds of determinations because it has a deep understanding of its customers, bolstered by its BSC.
Creating Value in a Hotly Competitive Industry The fast-food industry has always been highly competitive; as early as 1969, when Dave Thomas founded Wendy’s, critics warned him there were too many players. With many analysts viewing the recent and ? rstever quarterly loss of industry giant McDonald’s as a harbinger of tougher times, the pressure to perform has been turned up another notch. Barker ? nds the BSC an important tool for managing in this kind of environment. “The BSC,” he observes, “adds value by focusing managers on important measures across many dimensions.
You focus on what you measure. ” Because the BSC provides the right data on demand, Wendy’s can now go beyond gauging pro? tability per restaurant to measuring pro? tability per customer per hour for each of its restaurants. Balanced Scorecard Report July–August 2003 Community involvement Evolving businesses qu a lit y l e a d i n ev er th er y g Understanding the consumer Wendy’s considers this representation of strategic objectives preferable to a strategy map, because it is more easily understood by 18-year-old employees and the company’s franchisees, who fall outside of the BSC system.
does not illustrate the interrelationships among these dimensions, the graphic is designed to resonate with senior executives and 18-year-old restaurant workers alike. Operational Excellence: Speed Counts In the quick-serve industry, operational excellence is, among other things, what makes fast food fast. The BSC helps Wendy’s better measure performance and maintain its advantage in this crucial area. For example, with 65% of its customers using the drive-through window, speedy service is of the utmost mportance. Using time-motion studies, Wendy’s found ways to shave time off of this service. The company’s BSC monitors this all-important measure internally, as well as through third-party analysis — an annual survey in QSR, a leading quick-service industry magazine. As a result of this focused effort, Wendy’s has had the fastest drive-through time for four years in a row, leading the To b e th e in Quality Mergers and acquisitions Continuous improvement Commitment to shareholders Supply chain management share holder value second-fastest chain in 2002 by a breathtaking 24 seconds.
A prerequisite to good service is employee retention — a huge problem in the industry. With many uniformed employees viewing their tenure behind the counter as temporary, the industry’s average turnover rate is a staggering 250%. Recognizing that lowering employee attrition leads to improved operations and store performance, Wendy’s tracks employee turnover on a quarterly basis (and the company celebrates the managers who do best on this measure). Since adopting the BSC, Wendy’s has reduced its employee turnover from 170% to 118%.
Customer Intimacy: Giving Customers What They Crave As Barker notes, Wendy’s has always sought to track trends rather than fall for fads. In-depth customer research in the late 1990s revealed that consumers were increasingly preferring 4 This article is made available to you with compliments of Harvard Business School Publishing in conjunction with APQC. Further posting, copying , or distributing is a copyright infringement. Since adopting the scorecard, Wendy’s stock price has gone up as much as 75%, its market share has risen to 14. % (year-end 2002) from 10. 2% in 1993, and its market cap has increased from $2. 5 billion in 1999 to $3 billion today. In 2002, systemwide sales across all of Wendy’s brands rose 12. 7% to $9. 4 billion, and revenues increased 14. 2% to $2. 7 billion. This year, while the economy, gas prices, and bad weather depressed ? rst-quarter results, the company expects more robust performance for the rest of 2003. Managing with the BSC: How to Maintain Strategic Focus The BSC is ? rmly embedded in the way Wendy’s manages its business.
Today, all functional areas of the corporation — HR, administration, IT, investor relations, accounting, marketing, communications, treasury, and operations — have scorecards, which Schuessler and Anderson review twice each year. Each division monitors its BSC measures on a quarterly basis. At the corporate level, Wendy’s has increased managers’ awareness of how their decisions can affect the entire organization by tying budgeting to the scorecard. “The BSC forces people to really understand how adding two staffers in IT, for example, will affect not only their department but the entire organization.
They can then think about justifying the need for that head count in a different way — or perhaps ? nd another way to solve the problem without adding people,” Barker explains. One of the ? rst departments within the company to implement the BSC, Wendy’s IT department serves internal customers throughout the organization, including some franchises. CIO John Deane has found that the scorecard not only helps IT stay aligned with corporate strategy, but also that it enables quicker, more effective customer service. By monitoring BSC measures, such as “help desk ticket count,” Deane’s team can nticipate potential problems. Deane also found that with the BSC, his managers see more ways to improve customer satisfaction. “Once an operations manager dives down into the different components of a measure and gets used to dealing with it at that level, he [or she] then knows what lever to pull in order to move the measure forward. ” Furthermore, he says, the scorecard exposes the interrelationships between measures. So, for example, if the number of help desk tickets increased without a corresponding rise in satisfaction, that would raise a red ? ag. [The BSC] provides us with a broader perspective and enables us to look at the whole picture in a new way. ” The BSC has heightened manager accountability, too. All unit leaders have BSC measures that are tied to their annual performance review, making them accountable for their respective area’s results. For example, the person responsible for Wendy’s North America business has a number of scorecard measures such as “operating income” and “number of stores opened. ” That executive’s BSC would also measure a variety of criteria, like the effectiveness of advertising, consumer ratings, and brands.
All of that data is pulled together for the executive’s annual reviews with the CFO and CEO. Keeping Franchisees Up to Speed The vast majority of Wendy’s outlets are franchised, and some franchisees run only one store. So implementing the BSC among franchises would not only have been contrary to the semiautonomy that makes franchise ownership attractive, it would have been a major logistical challenge. While the individually operated stores do not have BSCs, Wendy’s does communicate to franchisees the importance of the strategic plan and shares with them corporate performance measures.
This information sharing takes place within the franchise leadership groups, which are elected by the franchisees within each division. Through memos, Web casts, and a systemwide employee magazine, Wendy’s gets even its small operators to focus on vital measures like employee turnover. A Barometer for the Board Wendy’s also uses its BSC to communicate with its board of directors, which reviews scorecard results annually. “We’ll go through our yearend results in terms of the scorecard and then we’ll look at our budgets,” says Barker. We show the board the consolidated scorecards, including financials, process redesign bene? ts, market capitalization, transactions at the restaurant level, and new-store growth at Tim Hortons. It gives the board a lot of comfort to have this information,” he notes. Furthermore, the board is updated either quarterly or semiannually on speci? c leading indicators. Members are particularly interested in seeing consumer-attributes feedback as well as market-share changes. They also want to see how Wendy’s IT capability compares with that of its industry counterparts. They can’t afford to be passive as a board,” says Barker. “They need to see where the company is going. ” From the boardroom to the front counter, continuous improvement has long been central to how Wendy’s runs its business. The Balanced Scorecard, says Barker, has been key in taking that forward-looking mentality to the next level. “The best companies change and continue to improve, rather than wait until they are under duress. ” Barker continues, “The BSC enables us to be more proactive and professional in our management approach — we can spot more issues earlier.
