Smart Restaurant Operators Can Learn a Lesson From Baseball
by Michael Harms---Research Analyst, People Report

A wise man once said that rather than thinking of baseball as an analogy for life, one should think of life as the ultimate game of baseball. Therefore, it should come as no surprise that the highly anticipated meeting between the Seattle Mariners and Boston Red Sox on April 11th would illustrate and reinforce a key element in the staffing strategy of every savvy restaurant operator---namely, if you want to get the most bang for your buck, take advantage of your current workforce and promote from within when looking for your next manager.
 
The game between Boston and Seattle was the subject of much hype as it featured the debut of Red Sox pitcher Daisuke Matsuzaka in Boston's Fenway Park. The 26 year old Matsuzaka was a highly sought after Japanese baseball star, who after an intense bidding war, signed a contract with Boston in the off-season which will pay him over $100 million over the next several seasons. Pitching for Seattle was Felix Hernandez, a young right-hander who had turned 21 just three days earlier and whose salary of $420,000 paled in comparison to the $6.3 million Matsuzaka will earn in 2007.
 
Unlike the expensive free agent Matsuzaka, Hernandez began his professional career in the lowest rungs of Seattle's minor league system in 2002. It was not until late in the 2005 season that Hernandez was elevated to the Major Leagues, with 2006 being his first full season. However, Seattle's patience with their young prospect paid off, particularly on that April night against the Red Sox. While Matsuzaka pitched ably, it was Hernandez who stole the show, throwing a no-hitter into the eighth inning, and finishing the game having allowed no runs and just one hit.
 
As every knowledgeable baseball fan knows, the key to success is good pitching---and good pitching is scarce and expensive. Hence, it is extremely important to draft well and to stock your minor league teams with players who harbor both talent and potential, so that with the proper guidance they will develop into big leaguers and your team will reap the benefits of their promotion. Likewise, every economically prudent restaurant operator knows that sound hiring practices can pay off and serve as a ready pipeline for talent with their organization.
 
Just as the expansion in the number of major league franchises in recent years has placed a premium on pitching, the tremendous growth experienced by the foodservice industry in recent years has created the need for even more capable managers. The availability of managerial positions throughout the industry has made hiring and retaining qualified managers even more difficult—a sad reality reflected by the extremely high levels of turnover People Report has been tracking in recent quarters, as well as the surge in the number of hires sourced through agencies. As the competition inside and outside of the industry intensifies, companies making it a strategic objective to develop a reservoir of potential management talent will harbor a definite competitive advantage. The benefits of internally promoted managers are many, especially when compared to those sourced through agencies.
 
The number of management hires reported as internally sourced has declined for four consecutive years to 28% in 2006. Meanwhile, over that same time-span, agency sourced hires rose from 11% to 14%. These three percentage points may represent just a fraction of the hires tracked each quarter, but they account for a considerable portion of the thousands of dollars paid out to many of these hires. According to People Report data for 2006, the newly hired Assistant Manger sourced internally earned an average base salary of $37,913---the lowest of any source tracked. Conversely, agency sourced hires earned an average salary of $46,603---the highest of any source, and a whopping 23% more than the average salary of internally promoted Assistant Managers. Despite the increased salary, the managers sourced via agencies had an average tenure of just 1.9 years, far less than the 3.3 years that the average internal promotion stayed with their company.

 

	Internal Promotions	Agency Hires
Asst. Manager Base Salary	$37,913	$46,603
Tenure	3.3 years	1.9 years
% Female	41%	20%
Composite Diversity	59%	38%

 
 
People Report has long noted that there is a visible correlation between turnover rates and ethnic and gender diversity within a company---namely, the more diverse the workforce, the lower the turnover----and internally promoted managers are far more diverse than those hired from other sources. While only 20% of agency hires were female, 41% of internally promoted managers were women. Looking at the Composite Diversity Index, which tracks the number of racial and gender minorities in an organization, also yields similar results. The Diversity Index reading for internally promoted managers was 59%---over 20 points higher than the 38% of agency hires. Accordingly, companies who sourced more managers internally generally see decreased levels of turnover.
 
 

Companies by use of Internal Promotions	% of Hires Internally Promoted	Management Turnover
Bottom 1/3	10%	39%
Middle 1/3	23%	31%
Top 1/3	46%	25%

 
 
The free market is rarely kind to business operators who lack foresight, and the restaurant industry is no exception. As the ability to find and recruit potential managers becomes increasingly difficult, it is essential for companies to find innovative ways establish a clear path of progression for future management hires in order to retain this talent. After all, just as every free agent baseball star began their career with one organization and slipped away, so, too, every good restaurant manager got their start somewhere.

The key is not overlooking the talent within your own organization, or, as the manager of the Seattle Mariners, Mike Hargrove, said following the masterful performance of his young pitcher, "With all the hype going into this game with Matsuzaka… I kept in the back of my mind that people better not overlook our guy… I think [Felix Hernandez] is ultra special, and we're sure glad he's on our side." If you have someone on your team who you think is ultra-special, don't overlook them the next time you are searching for your next manager.