When Peter Dunn took over as CEO of Steak n Shake in 2003, his goal was to turn the company around and fund its expansion. Turnover emerged as one of the restaurant's biggest and most expensive problems. In the first quarter of 2003, crew turnover topped 200 percent.

As Dunn implemented a plan to provide better support to employees, the turnover rate began to fall. At the same time, guest satisfaction, as measured by Mystery Shops, began to improve. During the first quarter, crew turnover was at 213% and customer satisfaction was at 81.2 percent. By the third quarter, turnover had dropped to 192 percent and guest satisfaction had increased to 86 percent. At a current rate of 188 percent, Steak n Shake's turnover is still 59 points higher than the industry average. The company has told investors that it can save $2 to $4 million per year if it can only convince more frontline workers to stay on the job.

Dunn's plan to bring the restaurant around centers on an idea he calls the Virtuous Cycle - better known as the service-profit chain. The idea is that loyal customers are the result of customer satisfaction, which is directly attributable to loyal, contented employees.

Steak n Shake says that keeping management turnover alone down can result in a $1 to $2 million savings per year. Part of the company's solution is to involve managers more in operational decisions. Each manager has been given a book of statistics on his or her individual restaurant, including which items produce the most profit, turnover rates, customer satisfaction scores, and drive-thru efficiency. The managers have been asked to come up with an action plan to improve their restaurant and to share this plan with their employees.

Frontline turnover is another key initiative. Because there is a high correlation between the amount of benefits that a company offers its employees and turnover rates, Steak n Shake has looked at its benefit offerings and made some enhancements. The company has introduced self-funding vision and dental plans, which can reduce employee expenses by about 50 percent. Other initiatives that can help reduce turnover include a comprehensive orientation for new hires, and making improvements in employees' "line of sight," or how they see themselves in relationship to the company and its goals. The better they understand their position and role in helping the company reach its objectives, the better their job satisfaction, which can mean as much as four times the total return for investors.

Another large problem that Steak n Shake needs to address is understaffing. As the company has grown and expanded the number of restaurants it has, the number of employees per restaurant has actually decreased. Fewer employees mean more stress and more potential for burnout. In the restaurant business, this can lead to mistakes that can increase food expenses for comped meals and gestures to make up for oversights that occur when servers are too busy.

The efforts Steak n Shake have taken have already shown an impact. The company was at a low point in the first quarter of 2003, with same-store sales dropping to -4 percent. By the fourth quarter of last year, same store sales had increased to 12 percent.