Management Consulting/Total Quality Management

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QUESTION: hi sir, kindly send me answers with suitable examples ...
1. Select a restaurant of your choice. Identify some of the micro operations that might be
found in a good restaurant operation. List out the things which might go wrong in each of
them, thereby affecting the quality of the restaurant. Assess the impact of them on the end
user or external customer.
2. Read the manual of ISO 9000 or an equivalent and assess its potential impact and
relevance on the quality of an organization.
3. Why do organizations go for Quality Awards? Discuss with the help of an example, the
advantages and disadvantages for an organization considering applying to be assessed for
a major quality award.
4. The worldwide fast-food restaurant chain McDonalds has never actually used TQM
guide. Despite this, their quality is renowned for being excellent throughout the world.
Explain this keeping in mind the concepts of Total Quality Management.
5. Do you think that Professional status and code of ethics are important for an
organization? Justify giving examples.

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1. Select a restaurant of your choice. Identify some of the micro operations that might be found in a good restaurant operation. List out the things which might go wrong in each of them, thereby affecting the quality of the restaurant. Assess the impact of them on the end user or external customer.


Micro Factors and Restaurant Failures

Capital:
One of the most commonly cited factors that contribute to restaurant failures is the lack of capital. The restaurant industry is known to have low entry and exit barriers. Thus, most restaurant entrepreneurs try to enter this industry with low capital because the entry barriers are low. As a result, most entrepreneurs enter this industry with enough capital to open the restaurant doors but not enough to sustain the first few lean months of a restaurant’s life span. Consequently, the entrepreneurs may not even have the resources to market their business as they should when revenues fall short. According to various studies and the Small Business Administration, lack of capital is one of the primary reasons why restaurants fail.

Location: The choice of location is expected to have significant impact on the success or failure of a restaurant. Success of a location depends not only on its physical site, but also its surrounding demographics. In other words, location is a complex construct that encompasses geographic, as

well as demographic and psychographic variables. Any changes in geographic or demographic/psychographic variables of a specific location could have significant impact on the attractiveness of a location. For example, Kahiki Restaurant located in Columbus, Ohio was ranked as one of the Top 100 restaurants in the US. It was visited by several Hollywood and national celebrities as a destination restaurant. Over next three decades, this particular location continued to become less attractive as the affluent of the neighborhood moved, leaving empty spaces, vacant houses, and ‘brown fields’. Eventually Kahiki was closed for good as the location became impossible to operate profitably. In this case, the geographic factors of the location did not change much, but the demographics changed; resulting restaurant failure. In another situation, a restaurant in Ohio was forced to close its operations after operating nearly 20 years in the same location. In this case, the demographics actually improved over the 20 years making the location very attractive. However, as this small town grew, the city government decided to build embankments on both sides of the road to improve public safety. These embankments totally obscured the restaurant from customers’ view. As a result, customers were forced to go to the next traffic light and take a turn to visit this restaurant; compromising the convenience factor which is so important for the industry. This restaurant was closed eventually due to reduced patronage as a result of the lack of visibility.

Quality of Life The quality of life in the restaurant business is a real challenge. Most restaurateurs are known to work 60 hour work weeks compromising their quality of life and sacrificing their family lives. As documented , quality of life is one of the primary factors in the closings of most restaurants. Most restaurants are busy when other businesses are closed –10

evenings and weekends. This situation forces restaurateurs to sacrifice their family time; placing a strain on their familial bonds. This strain eventually compromises the quality of life of restaurant owners leading to the closure and loss of restaurant business.

Entrepreneurial Incompetence:
Most restaurateurs enter the restaurant business as entrepreneurs chasing the dream of owning their own business. Some of the motivating factors to enter the restaurant business are the attractiveness of low entry barriers; passion for the product; unique product attributes they have developed (secret recipes); experience in the field; an opportunity to purchase a business at an attractive price; (over) confidence in one’s ability to perform better than the previous owners of the business; a good match between individual skills and business opportunity etc. Unfortunately, in most cases, an entrepreneur’s passion exceeds one’s competence. They may possess necessary technical skills that may only be good enough to open the business, but may not have the necessary business acumen to understand the intricacies of marketing, accounting, finance, legal matters, human resources etc. In other words, most restaurateurs may be excellent entrepreneurs but not necessarily have the skills to succeed as business managers. In other words, entrepreneurs may not have the skill sets to transform themselves from entrepreneurs to professional business managers, which also often results in restaurant failures.

Experience Most restaurant owners may lack the necessary prior business experience to manage their restaurants. Lack of prior experience in a related field makes new restaurateurs more vulnerable to failures. According to a recent study  employee theft is one of the primary reasons why some restaurants fail. The owner did not have enough knowledge or experience in the field to control employee theft which eventually led to the closing of the restaurant. In
contrast, most successful restaurateurs tend to have prior industry or related experience as in the cases of Dave Thomas of Wendy’s; Howard Shultz of Starbucks (who studied 500 coffee houses located in Italy prior to opening any of his coffee houses); Colonel Sanders of KFC etc.

Leadership
Obsession with Product and Service Quality is a recipe for success in the restaurant industry. This obsession applies to fast food, casual, upscale or fine-dining. The restaurant operator must maintain a pulse on guests’ likes and dislikes at all times by constantly asking the guest for “complaints” – how can we be your favorite restaurant and make you a fanatically loyal repeat guest? When the operator demonstrates this approach to the business, the employees will reflect the same attitude. This infectious attitude will make the difference between success and failure.

Ability to Create/Build the Brand
During the past ten years, more and more “corporate refugees” have left the corporate world to become entrepreneurs. They set- up shop for themselves and try to make a go of it -even in this economic environment. More power to them! Because of the proliferation of small business restaurant owners, they often lack the basic branding skills necessary to thrive in the competitive world of restaurants. The competition (especially with the mega chains) is too fierce to not focus on the basic 12 Ps of restaurant branding: Place, Product, Price, People, Promotion, Promise, Principles, Props, Production, Performance, Positioning and Press. The operator frequently does not consider incorporating all five senses into the restaurant brand to create trial use – triggering moments of truth that resonate emotional chords in the brain of the guest. Only by consistently obsessing over the 12 Ps in order to brand (short, mid and long-term marketing) 12

will the restaurant have a chance to capture repeat and referral disciples. A sampling of these critical branding concerns follows…..name, design and concept.

Name of a Restaurant: An analysis of 1,800 restaurant names by the authors has revealed that a typical restaurant name has 13 letters comprising of 8 consonants and 5 vowels. The name of a restaurant makes a difference in the success or failure of a restaurant. A restaurant name should be different and at the same time descriptive. Restaurant names should be brief enough to remember and consumers should be able store them in their short term memory. When a restaurant name is too long and not descriptive enough, then that restaurant is less likely to succeed. A restaurant with a name that is brief, descriptive and attractive is more likely to succeed. For example, the well known restaurant company Kentucky Fried Chicken has changed its name to KFC to avoid emphasis on its frying production method which was perceived as being less healthier. Another independent owner has changed his restaurant name from the too long and overly descriptive name, Cameron’s Contemporary American Cuisine, to a brief, but memorable name - Cameron’s; a hamburger chain, Wendy’s Hamburgers, simply became Wendy’s, deemphasizing its hamburger business as it added chicken and other non-beef items. From the retail industry, Walton Mart has changed its name to Wal-Mart; General Motors became GM; British Petroleum became BP; International Business Machines became IBM; National Cash Register became NCR, etc. Some companies change their names to hide their national identity or the origin of the product when they enter global markets.

Design and Layout: Success or failure of a restaurant depends partly on the physical layout and architectural design of restaurants. Design failures of restaurants lead to operational inefficiencies and

eventual loss of competitive edge, ultimately leading to financial losses. Architectural limitations were found to be one of the major factors in restaurant failures especially in urban settings, and some of the architectural limitations in restaurants have even resulted in the greater failure of the business. Inadequate production or storage space is one of the most common complaints in hotel foodservices. A major hotel near the convention center in Orlando, Florida was forced to forego some of the restaurant business as its facilities were not designed in proportion to the hotel size. The production area was too small to accommodate the necessary capacity seating. As a result, some of the customers were forced to choose other restaurants nearby. Similarly, a major pizza restaurant in Fayetteville, Arkansas was forced to new build a ‘dumb waiter’ to bring its supplies from the basement constantly. After several years of continued operations in that location, this location was closed and the restaurant was moved to a better location to meet its storage needs.

Taj Mahal Syndrome:
Most restaurant entrepreneurs often forget the fact that a restaurant is a business that is meant to achieve specific financial objectives. Like all other businesses, restaurants are also expected to result in positive financial outcomes with reasonable returns on investments (ROI). Restaurants that do not deliver these objectives are bound to take the path to a restaurant cemetery. To put things in a historical perspective, the monument Taj Mahal of India was not built as a place to live or a palace to visit. The King Shah Jehan wanted to a build memorial for his wife who died at a young age of 39 after giving birth to several children. The construction of Taj Mahal took so long that even the King Shah Jehan did not live long enough to see the completion of it. Eventually he was also buried in the same place next to his wife. Similarly, most restaurateurs often get carried away with their own grandiose plans and creative ideas for their restaurants. They tend to invest every last penny they have in building a  

monument instead of constructing a realistic, practical and financially feasible place of business. For example, two entrepreneurs in Columbus, Ohio spent over 1.5 million of borrowed money in remodeling an old bank structure with Greek gothic columns and incredibly high ceilings into a destination restaurant. They spent so much money on remodeling the old bank building that they did not have any money left for marketing the ‘Taj Mahal’ they just built. Within six months this particular restaurant was closed for lack of marketing efforts and eventual lack of consumer awareness. This gorgeous building still remains vacant.

Concept:  poor concept that is not differentiated is one of the primary reasons for restaurant failures. When a restaurant is not dedifferentiated from the competition, then consumer acceptance of that concept is bound to wane quickly after the excitement of a ‘new kind on the block’ attraction fades. Simple ‘cookie cutter’ imitation of another concept does not have the staying power. Most imitations are bound to fail quickly as it happened in case of White Towers restaurants that imitated White Castle; Andy’s and Cindy’s restaurants that copies Wendy’s; Burger Chef and Burger Queen that imitated other major hamburger chains etc. Undifferentiated concept is symptomatic of bankruptcy in entrepreneurial innovation. Restaurant concepts that focus on imitation and ‘me too’ concepts do not have the skill sets to face the challenges of continual adaptations that are essential to survive in the restaurant business.

Controls a typical restaurant in America earns a net profit under 10%. That means 90% of revenues are used to defer the cost of doing business. Thus, managers that do not understand the importance of cost controls are bound to fail

in the restaurant business. Two major costs in the restaurant industry are food cost and labor cost. These two costs together are referred to as prime costs. For a restaurant to succeed, the prime costs are expected to be less than 60% of revenues. It is a ‘rule of thumb’ and a good rule to follow. Most restaurants that have failed often were found to have prime costs exceeding 60% indicating greater potential to failure. For example, a popular celebrity restaurant in Buffalo, New York has reported food cost exceeding 56% which is almost twice the industry average. It is needless to say that this particular restaurant has failed within 2 years of opening because of poor cost controls. Similarly the failure of a popular nationwide restaurant chain, Vitoria Station, was attributed to its high food cost resulted from selling prime ribs on its menu.

High Fixed Costs: Unfortunately some restaurateurs are tempted by the attractiveness of a location so much that they are often willing to pay unrealistically high rent for a location. The attractiveness of a location should always be tempered by the realities of the rent paid. Unrealistic rent, a fixed cost, does not change when revenue change. When revenues decline and do not meet the financial objectives, the fixed costs continue to remain constant and become a major financial liability. This case is true especially in down town locations and tourist attraction places. The rule of thumb for rent/lease/mortgage fixed cost is 7-9% of revenues.
In summary, a variety of factors have been identified as contributing to the approximate 30% failure rate of restaurants in their first year.





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Leo Lingham

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