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Happier Employees + Happier Customers = More Profit

HR professionals at Jack in the Box restaurants use metrics to make the connection.

July CoverShortly after being hired at Jack in the Box Inc. to lead the learning and development function more than a decade ago, I discovered that corporate leaders used the service profit chain model as a foundation for running restaurants. The idea was that if restaurant managers were good at hiring the right employees, those employees would provide better service to our guests. This would result in happier guests, who would be more loyal to the brand. That was the belief system or logic chain. We put language to that effect in our annual reports.

We in human resources measured employee satisfaction and engagement through an annual survey. We even demonstrated relationships between satisfaction with the boss, benefits, training, turnover and so forth, but that's where HR's analytical connection to the business stopped. It was interesting to me that HR professionals never helped connect the "people" data to the financial and operational data. It was equally surprising that professionals in finance and operations never expressed an interest in people data as a strategic part of their analytical work. After all, they measure every aspect of restaurant and business performance.

This is where the story changes: In 1998, I reached out and gathered all the restaurant performance data and then linked the people metrics and business performance for the first time. Those early analyses were interesting—and the start of a strategic shift in decision-making. The data revealed that restaurants with happier employees had happier guests and higher sales and profits. We learned that the manager controlled much of what we saw as employee satisfaction but that "happy employees" were only part of the equation that led to our current "people equity scorecard."

At that moment, we were starting to speak the language of the business through the data and process. We followed up the annual survey with quarterly internal service surveys that had eight dimensions:

  • Communication.
  • Feedback.
  • Interpersonal treatment.
  • Leadership.
  • Physical environment.
  • Rewards and recognition.
  • Staffing.
  • Training and development.

The quarterly surveys measured how the restaurant manager was performing, and the scores were a component in the manager's performance review. We used those results to inform our restaurant operations team about what was really driving employee engagement and performance. To their surprise, it was less about pay—despite entry-level wages associated with the quick-service restaurant industry—and more about consistent staffing, training and feedback.

Happy employees were only part of the equation that led to our current ‘people equity scorecard.’

People Metrics Evolve

Fast-forward a decade, and we now have a deep understanding of the statistical relationships between people metrics and business performance. Our people equity s corecard is the result of our HR professionals partnering with finance and the Metrus Group ​of Somerville, N.J.

Today, we bucket people metrics in three dimensions of a model developed by Metrus—alignment, capabilities and engagement, or ACE for short. To maximize performance, a restaurant must score highly in all three dimensions, whether operated by the company or a franchisee.

Alignment means employees understand what the company's strategy and tactics are and how those strategies and tactics connect to what they do every day.

Capabilities means employees say they are surrounded by the right talent, resources and information to productively execute their responsibilities.

Engagement represents employees' commitment, their advocacy for the brand and the level of discretionary effort they are willing to put forth at work.

When our restaurants earn high scores in all three dimensions, we consider them to be optimized on people equity. These restaurants outperform restaurants with lower scores, even those that score high in one or even two dimensions on every operational and financial measure.

In addition to the evolution of our model that describes people equity, the survey process has evolved. The first few surveys were paper-based—and logistically challenging and inefficient. Today, the annual ACE survey and quarterly internal service surveys are administered online, in English and Spanish, at our computer-based training terminals in the back of each restaurant. Data are captured by our external partner and then merged with other restaurant and individual performance information for analyses. Using an external partner is efficient and provides employees a greater sense of anonymity.

"When you evaluate quantitative and qualitative data independently, as we had done for many years, you can gain insight into certain aspects of your operations. But a stronger business case is achieved by taking a more holistic approach in evaluating all of this information together," says Linda A. Lang, Jack in the Box's chairman and chief executive officer. "We've been able to show a strong correlation between our people metrics and our financial metrics, which allows us to focus on strategies that improve the financial results of our business while enhancing the quality of the work life for our employees."

All HR tools and processes take ACE principles into account. We have refined the job profiles, hiring tools, training and performance management systems for restaurant managers and leaders who directly control critical ACE factors. Ongoing driver analyses show that some factors have more impact than others. For example, among restaurant crews, the opportunity to learn and grow has three times the impact on engagement as getting a preferred schedule. For managers, that knowledge provides valuable guidance on where to focus time and energy.

And, by assessing restaurant managers and their bosses against the newly created job profiles, we uncovered no new competencies, just a difference in the importance of existing ones. In our business, it's critical to have leaders who recognize that they're in the "people business" vs. those who view themselves as running a "manufacturing plant" where people aren't the focus.

Jack in the Box Inc.

Services: Operates and franchises Jack in the Box and Qdoba Mexican Grill restaurants.

Ownership: Publicly held (NASDAQ: JACK).

2011 revenue: $2.2 billion.

Top executives: Linda A. Lang, chairman and chief executive officer; Mark H. Blankenship, senior vice president and chief administrative officer.

Employees: 25,700 corporate employees, excluding franchisees' workers.

Locations: Headquarters in San Diego. More than 2,200 Jack in the Box restaurants in 20 states and more than 600 Qdoba Mexican Grill restaurants in 42 states and the District of Columbia.


Strong Correlation

ACE scores demonstrate powerful relationships with restaurant performance. With a statistical correlation of r=0.70, they account for half of the variance in restaurant-level turnover. Optimized restaurants have 21 percent lower turnover than restaurants with lower scores. Similarly, optimized restaurants have 5 percent higher overall guest satisfaction scores, 10 percent higher sales and 30 percent higher profits than lower-scoring counterparts.

Hence, simply having happy employees is not enough. Restaurants with high engagement scores do not necessarily have high alignment and capability scores. We have restaurants with every combination of ACE scores. It's not uncommon for a retailer to have a guest-service employee who is friendly but not properly trained or not aligned with the guests' service expectations. Negative interactions with guests—unfriendly, uncooperative employees or slow service—are all too common and negatively impact the restaurant business.

The power of the data lies in our ability to drill down to the restaurant level with the results. We can craft interventions that maximize scarce corporate and field resources. For example, we learned that alignment was influenced most by consistent communication to and with the crew. We developed a tool and process for managers to conduct short but informative crew meetings where they cover goals and performance and provide opportunity for rewards and recognition.

This allows us to hold the right people accountable for the right level of change. All too often, executives look at rolled-up results that can hide variability in performance at regional, departmental and unit levels. My advice on these types of analytics: Take them down to the lowest organizational level.

Follow Up at Specific Sites

Another benefit: We can conduct follow-up surveys at restaurants with low scores. This allows for frequent follow-up and is more effective than waiting for next year's survey.

Last year, "I jumped at the opportunity to pilot the ACE survey at my 22 restaurants," says franchisee Mike Flores of Monterey, Calif. "This program provided valuable, anonymous feedback from my 600 management and crew employees. Although my overall results were quite positive, there were certain areas where we as an organization could benefit by focusing our attention."

This operator discovered opportunities even in his two highest-volume locations. They included more consistent communication around goals, rewards and recognition, execution, staffing, and equipment maintenance. According to Flores, "Even the best managers need feedback that will help them continue to raise the bar on performance, and the ACE survey did that."

Sometimes we are guilty of focusing on the lowest-performing units or leaders while assuming that "strong" performance implies optimized ACE scores—a scenario we now know is not true. Making that assumption means leaving sales and profits for eager competitors to steal.

Develop the Scorecard

Using people analytics to better understand business performance has grown in popularity. In part, this is due to technology for administering surveys and merging results with financial data, including business performance and guest or consumer feedback. At Jack in the Box, this means having the ability to merge people data—training records, performance ratings and demographic data—from our human resources information system into our master data warehouse, which contains all other information such as sales, profits and customer feedback. These data are then shared with our outside partner, which merges the information with the survey data and analyzes it.

Key to these links: HR professionals' role in partnering with other C-suite functions to create a data-driven scorecard that makes sense for your business model. At Jack in the Box, this information has been used to make decisions that have saved millions of dollars in costs for labor, food, workplace injuries and other expenses while driving top- and bottom-line performance in sales, profit and customer satisfaction.

Leverage "all of your resources and assets, including survey data," advises President and Chief Operating Officer Lenny Comma. "When properly evaluated, data are a great way to discover new opportunities, make course corrections and identify bright spots."

The author is senior vice president and chief administrative officer of Jack in the Box Inc. in San Diego.

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