Issue #13 | September–October 2016



“Today we know that productivity is the true source of competitive advantage,” Peter Drucker asserted. “But what we must also realize is that it is the key to social stability as well. For that reason, achieving gains in service productivity comparable with those we have already achieved in manufacturing productivity must be a priority for managers throughout the developed world.” What follows are the stories of three organizations—one business, one nonprofit and one city task force—that have figured out how to raise the productivity of service workers. Knowingly or not, they’ve all followed Drucker’s prescription for productivity enhancement: clarifying the task at hand; defining performance and engaging front-line employees in the improvement of various processes; and building continuous learning into the job.


For many reasons, being more productive doesn’t necessarily lead to more pay. But higher wages do ultimately depend on growth in productivity.


“Today we know that productivity is the true source of competitive advantage,” Peter Drucker wrote in a 1991 piece in Harvard Business Review. “But what we must also realize is that it is the key to social stability as well. For that reason, achieving gains in service productivity comparable with those we have already achieved in manufacturing productivity must be a priority for managers throughout the developed world.”

Plenty of those in service-sector jobs are doing just fine, of course. Data scientists, designers and others whom Drucker termed “knowledge workers” are generally well compensated.

But for many people—especially those without a college education—the growing ranks of service-sector jobs have been a feeble substitute for the blue-collar factory positions that previously offered a solid path to the middle class. Janitors, food servers, retail clerks and nursing-home attendants are standing still economically, if not losing ground.

“In their social position,” Drucker wrote, “such people are comparable to the ‘proletarians’ of years ago: the poorly educated … masses who thronged the exploding industrial cities and streamed into their factories.”

How much productivity can be lifted at this point is unclear. Some experts—including, most prominently, economist Robert Gordon—maintain that our nation’s biggest productivity-boosting innovations are behind us, at least for the foreseeable future. Others say that productivity is actually advancing at a brisk pace; we’re just not very good at counting all of the positive things that are happening, especially in the digital world.


The Drucker Institute’s Phalana Tiller visits with research scientist Andrew McAfee at his MIT offices to talk about how organizations can best prepare for new technologies that promise to raise service productivity.


In-N-Out Burger, a 300-plus outlet chain in six states, has made workflow into an art, in part by concentrating on just a few offerings: burgers, fries and drinks. In-N-Out Burger by Craig Lloyd is licensed under CC BY 2.0

In either case, this much is clear: Without increasing our output per hour of work and also increasing the productivity of the capital we invest, we won’t have a shot at increasing our standard of living over the long term; nor will we be able to put a dent in the gap between rich and poor.

“The less productive an economy,” Drucker asserted in The New Realities, “the greater the inequality of incomes. The more productive, the less the inequality.” (Of course, as the pie grows, executives have to make sure that their employees actually get a bigger slice—something that hasn’t been happening for quite a long while in the United States.)

With that grand mission ultimately in mind, what follows are the stories of three organizations—one business, one nonprofit and one city task force—that have figured out how to raise the productivity of service workers.

Knowingly or not, they’ve all followed Drucker’s prescription for productivity enhancement: They have very clearly “defined the task” at hand—and made certain that work is focused on it, instead of running off in different directions. They have “defined performance” and engaged every employee as “a partner in productivity improvement and the first source of ideas for it.” And they have “built continuous learning … into the job of every employee and every work team.”


In the public imagination, burger flipping is the quintessential service-sector job, one that embodies all the dreariness and limits of a postindustrial economy: low pay, low morale, low skill, low chance of advancement.

In-N-Out Burger upends each of these notions. And it all begins with high productivity, which in its case rests on the core philosophy of founder Harry Snyder: “Keep it real simple. Do one thing and do it the best you can.”


While In-N-Out permits many variations of a burger order—buns or lettuce wrap, pickles or none, “animal style” (meaning with cheese and grilled onions and special sauce) or plain—the basic parameters of the menu have barely budged since 1948.

McDonald’s constantly adds and removes all manner of offerings. (McSalad Shakers, anyone?) But In-N-Out, which owns and operates more than 300 restaurants in California and five other states, has been as impervious as Rain Man to changes of custom. It sells burgers and fries and beverages, period. The only major addition to the menu has been that of milkshakes, in 1975.

This creates risks—customer tastes can change fast—but also important advantages. When you strictly limit the range of what you produce, you can greatly optimize how you produce it.

“In manufacturing, the goal is to ‘line balance’ so that you can increase the utilization of all resources,” says Rick Shofstall, an operations engineering consultant, who notes that by offering only burgers and fries, In-N-Out is able to avoid the logjams that plague other fast-food outlets. “This is why everyone looks so busy at In-N-Out. No one is waiting on someone or something else to finish before they can do their job. The system is balanced.”

In-N-Out has made workflow into an art. Stacy Perman, author of a 2009 book about the company, relates that In-N-Out University, a management-training center founded in 1984, uses NFL-style camerawork and instant replay to show employees what’s effective—and what’s not.

If you had an idea about how to wash the red trays faster or a different way to store the ketchup and chilies, managers would listen to what you had to say.

Former Associate, In-N-Out Burger

During peak times, a long line at the drive-through window can slow things down. “To moderate this constraint,” says Mike Hart, president of DBA Software, a Los Angeles company that helps manufacturers improve their efficiency, “order takers walk out to the queue and take orders well in advance of cars reaching the order station. Production begins immediately, in advance of payment.”

Technology has always been important to In-N-Out. It was, by most accounts, the first in the business to use a two-way intercom and drive-through setup (hence the “In-N-Out” name). Yet no one cites technology as the central factor to the chain’s high productivity. Employees talk instead about teamwork.

“All the positions at In-N-Out depend on each other,” says Mara Derakapet, who worked at both In-N-Out and McDonald’s before going on to a career in Hollywood as a marketer. “They didn’t do that very well at McDonald’s.”

If you are at the grill and getting “snowed,” as In-N-Out associates call it when more orders come in than you can handle on your own, someone jumps off another task to help you through the rough patch.

Derakapet says that, in her experience, neither colleagues nor managers ever expressed irritation when doing this. “If people got snowed on fries … it was ‘Let us help you get there,’” she says.



The nonprofit Youth Villages had a productivity breakthrough when it realized that it could treat troubled youth more effectively and efficiently inside their own homes, rather than at offsite facilities. Photo: Edna McConnell Clark Foundation

Training at In-N-Out is extensive, and the sequence of jobs is strictly set. An associate at Level 1 starts out picking up trash and, perhaps, taking orders. Only at Level 6 do you get to oversee the grill, a demanding assignment that requires unbroken concentration, since every burger must come out just right, and no burger is allowed to hit the grill until an order comes in. The next level, 7, takes you to management training.

As exacting as In-N-Out is, bosses remain receptive to suggestions for process improvement. “If you had an idea about how to wash the red trays faster or a different way to store the ketchup and chilies, managers would listen to what you had to say,” remembers photographer Courtney Verrill, who worked as an In-N-Out associate from 2012 to 2014.

Like all businesses, In-N-Out faces threats. A new chain called CaliBurger, with a chef de cuisine who was a former store manager at In-N-Out, has withstood legal challenges from the chain while offering a product of jaw-dropping similarity.


For now, though, the fortunes of the company persist in an upward trajectory, offering proof that even burger flipping doesn’t have to be a McJob.

Indeed, it’s no coincidence that while In-N-Out’s productivity is high, so is its pay. Wages start at $11 an hour, and while that’s hardly a bonanza, it easily eclipses those of fast-food competitors like McDonald’s and Burger King (at $8.50 or less). And the pay at In-N-Out increases markedly as employees rise in the ranks, sailing north of $100,000 a year at the level of store manager.

There’s no shortcut to running a branch, however. Every In-N-Out store manager must start as an entry-level worker—a requirement that provides a real appreciation for the productivity challenges that all employees face.


When you’re a nonprofit, you can measure productivity by looking at your outputs: the number of meals you’re serving if you’re a soup kitchen, for example, or the number of beds you’re providing if you’re a homeless shelter. But what you really need to keep an eye on is your outcomes: the number of lives that you’ve changed for the better.

It is this kind of thinking that led to serious changes at Youth Villages, a Memphis-based nonprofit launched in 1986.

Originally, Youth Villages ran residential treatment campuses for behaviorally troubled children. The idea was to pull them away from bad influences at home.

Through the 1990s, Youth Villages grew quickly, so that it was serving 1,000 kids by the middle of the decade. That was a lot of outputs.


The trouble was with the outcomes. Founder Pat Lawler noticed that about half of the young people who came to Youth Villages seemed to get into trouble within a year or two of leaving. It was a revolving door.

Enter Tim Goldsmith, who joined the organization in 1989 and today serves as its chief clinical officer. With a research background and a Ph.D. in marriage and family therapy, Goldsmith had many of the same concerns that Lawler did. And so he proposed to Lawler that Youth Villages undertake a large-scale data-gathering effort.

After a couple of years, the results came in—and they were unsettling. “The kids that got the most therapy from us did the worst,” Goldsmith says. “That was a real eye-opener.”

One possible explanation was that the toughest cases required the most resources, even as they had the lowest odds of success. Under that scenario, Youth Villages was simply doing the best it could with the tools it had. Another possible explanation, however, was that residential treatment alone wasn’t successful because concerns and issues in the home environment weren’t being addressed.


So Youth Villages began aiming to keep children in its facilities for as little time as possible—ideally zero—and instead work with children in their own homes, involving their families in the process.

The effect, says Lawler, has been dramatic. For the price of housing one child, Youth Villages can treat nearly five children in their own homes. (Youth Villages still runs a collection of residential campuses to care for certain cases.)

Most important, outcomes are better, too. Twenty years ago, a kid who had left the treatment programs of Youth Villages had a 50% chance of being in serious trouble again within a year. Today, says Lawler, that’s down to 20%.

Youth Villages has grown dramatically, reaching beyond Tennessee to work with more than 20,000 kids in 12 states. Lawler and his colleagues say they are cautious about expansion, but they hope that their peers in the field and in state governments will become more responsive to the data on in-home interventions. Public funding is still geared mostly toward out-of-home placement.

One major challenge for Youth Villages is keeping its staff happy. Lawler notes that younger employees, fresh out of college, can face “overwhelming responsibility” for compensation that could be “a hell of a lot better.” (Glassdoor pegs the average annual salary for a family intervention specialist at the organization at about $33,000.)

Hours tend to be very long, which is especially tough in a job that can be emotionally taxing. “If you’re consistently hitting above 40 hours of casework a week, it exhausts you by the time you get home,” says Brandon Pressley, a family intervention specialist in Indiana. “They’re gonna worry about you burning out.”

To try to help, Youth Villages is now rolling out handheld devices that allow for speedy input of client information, potentially sparing employees hours of dreary paperwork.

The initiative, which Pressley is helping to lead in his state, underscores a couple of essential principles for raising productivity: receptivity to criticism and an openness to new ideas—just as Youth Villages first demonstrated 20 years ago when the data poked holes in some basic assumptions and pointed to a better way.

“We took it seriously,” says Goldsmith. “And we did something with it.”


When the city of Phoenix found itself trying to cope with a $277 million budget deficit in 2009, the new city manager, David Cavazos, made the kinds of tough decisions called for by such a dire situation: He reduced hours at a bunch of libraries. He secured concessions from police and firefighters. And he helped push through a controversial 2% food tax.

But Cavazos wanted to be known for more than cuts. “I really believed that we could work harder, work smarter, dig a little deeper and find substantial savings,” he says.

And so he put into the budget, for the first time ever, $10 million for efficiency and innovation savings.

This led to the formation of what became known as the Innovation and Efficiency Task Force. Its mission: to guide Phoenix in spending less money while retaining at least the same level of service.

The panel included not only city officials but also 10 private citizens with various areas of expertise: real estate, law, finance, small business. They met twice a month. Chairing the task force was Phoenix’s budget director, Mario Paniagua.

As task force members dove into their work, they were careful to put their ideologies aside. “I just wanted it to work for benefit of the taxpayer,” says retired car salesman Sparky Smith, a Tea Party supporter who served on the group.

Given the operational realities of city government, however, that wasn’t always so easy. “It was important for government employees to hear good ideas from the private sector, but the private-sector folks also had to recognize that government is not only about efficiency,” says Ed Zuercher, who was assistant city manager at the time and is now in the top job. “Sometimes the most efficient way isn’t a politically or legally feasible way.”

Sometimes the most efficient way isn’t a politically or legally feasible way.

City Manager, Phoenix

Sensitive to these circumstances, Cavazos imposed a condition: No employees could be sacked. If departments were overstaffed, the problem was to be resolved by attrition or reshuffling, not layoffs. Productivity would have to be increased by more than a wielding of the ax.

As the process got going, city officials were challenged to push their own thinking. “The departments would make presentations and they would lay out in great specificity what was going on and what they were struggling with,” recalls Richard Rea, a former banker who served on the task force. “And we’d ask: ‘Have you thought about this? Or that? Or that?’”

Eventually, the meetings started to yield results—first slowly, then quickly. Sometimes, the small results became large, with effects that went beyond one department.

For example, the city had a hodgepodge of copiers and printers because most employees kept a small printer on their desks, and these machines all had their own supplies and maintenance requirements. The task force quickly realized that using a few centrally located machines would be much more efficient.

“I had a printer that came with my office, and I had to get rid of it,” Zuercher says. “Now you have to get up and walk five steps over to a mutual printer instead of reaching under your desk to grab a piece of paper.” Annual savings: $1 million.

If that was an easy win, streamlining garbage collection was more difficult. By speaking to a small-town city manager in Texas, Cavazos had learned that doing curbside pickup of ordinary trash and recycling on the same day didn’t just make customers happier; it also saved money by condensing certain tasks into fewer jobs.

The task force was eager to introduce this change to Phoenix, but it would require moving around the hours and shifts of sanitation workers. With some give and take, the city and the union eventually worked out a deal that everyone could live with. Annual savings: $2.3 million.

Conversations with sanitation workers in the field also led to unexpected insights. One asked why the paint job on the city’s garbage trucks included a decorative stripe, since it probably made the paint job more expensive. This seemed like a good point, and the city did away with this flourish. Annual savings: $50,000.

Framing things right was crucial. No one on the task force asked, for instance, whether the city should keep providing free transportation to elderly citizens who were headed to social events at different senior centers. They asked instead how best to provide that transportation. The answer: to give out taxi vouchers, allowing people to get from place to place just as before, except faster. Meanwhile, the shuttle service was ended, and the city drivers deployed to new assignments. Annual savings: $823,000.

Less than a year went by before the task force had reached Cavazos’s goal of finding $10 million in annual savings. After 18 months, the number had reached $25 million—more than 2% of the city budget. By 2014, it was $40 million in savings to the general fund and $51 million to non-general funds.

None of this involved reductions to services enjoyed by city residents.

In 2013, Cavazos left Phoenix for Santa Ana, California. In 2015, after hitting $100 million in annual savings, the task force disbanded. But many of the city employees involved in the effort found it to be revelatory. The sort of self-scrutiny and thinking it required has become “ingrained in our culture,” says Paniagua, who is now deputy city manager. To that end, Phoenix recently started a project called “Advance PHX,” led by Paniagua, which is intended to introduce new process improvements and metrics for measuring them.

Many of these changes are likely to raise productivity just as the task force did: one small step at a time. After all, says Zuercher, “there’s no $100 million idea. There’s lots of $50,000 ideas.” *

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Monday Mandate*

What will you do on Monday that’s different?


Work with your team to sharply define each task that you’re trying to accomplish, map how you’re currently getting there—and then systematically eliminate what doesn’t need to be done.


Because “service workers learn most when they teach,” as Peter Drucker explained, give your most productive front-line workers the opportunity to teach their peers the secrets of their success.


Look at each role in your organization and ask, “What value is this job supposed to add?” If people are spending an inordinate amount of time on other things, restructure the post.