Chang's Way

by Richard Florida

While many restaurants and restaurant chains are getting killed by the economic downturn, P.F. Chang's is up, up, up according to Slate's Dan Gross:

P.F. Chang's China Bistro, whose two restaurant chains--P.F. Chang's and Pei Wei Asian Diner--are staples of upscale malls and mixed-use developments, said that same-store sales fell a bit but profits produced at its 350 outlets rose 38 percent from the first quarter of 2008. Operating margins--the holy grail of any business--at P.F. Chang's 190 stores rose from 12.8 percent to 14 percent, largely because of "incremental operational improvement opportunities." The stock has doubled since November.

The reason: mainstream mall appeal, affordable offerings, and especially good management - based heavily on the principles of "kaizen" or continuous improvement pioneered by Toyota and other Japanese manufacturers.

P.F. Chang's made it to $1 billion in sales by taking cues from successful Asian businesses. Now by focusing on process improvement rather than helter-skelter growth, it seems to be doing so again. Continuous improvement, the philosophy pioneered by Japanese companies such as Toyota in which managers and workers relentlessly seek out small modifications that add up to big profits, seems to be the recipe for success in 2009.

Low-end standardized service jobs make up more than 40 percent of all U.S. employment. Imagine if more restaurants and service companies started to act like P.F. Changs. Innovation and rising productivity are the underpinnings of higher wages, and happy and engaged employees the key to more continuous improvement.