Assignment # 2
Change Management: Restaurants’ No-Tipping Policy Case
• Word Limit: 1750 to 2000 words
• Should use APA format.
• Use at least 5 external academic and relevant non-academic references to support your case analysis.
• Academic references must be published after 2010.
• Make any assumptions that will help you improve the analysis in your essay.
Steve Brown, founder and CEO of a Vancouver-based restaurant chain, began eliminating the practice of tipping in all his restaurants in Vancouver/Lower mainland.
Brown eliminated tipping for several reasons. For example, frontline employees (servers & waiters) were earning more than 50% of their wages in tips, increasing the income gap between frontline and backend employees such as cooks, where the income gap was up to 80%, as consumers tip only the waiters.
Brown assured workers that there would not be any net deduction in pay because of the new no-tipping policy, because he will introduce the no-tipping policy by using the increased food menu prices to pay all workers their rates both frontline and backend.
Soon customers began to show their dissatisfaction with the policy by decreasing their visits to restaurants and writing negative online reviews, hinting that a no-tipping policy was an issue for them.
Because part of frontline employees’ wages was tied to the total visits of customers, they ended up making less wages than they earned under the tipping policy, and several frontline employees left the restaurant branches because of the no-tipping policy. To fill the gap, Brown had to hire new employees who could not be adequately trained before taking the job, adversely impacting customer satisfaction.
Consequently, Brown had to cancel the no-tipping policy for all his restaurants.
Employee Response to the Policy
Once Brown implemented the policy, current and former employees of his restaurant stated that employee morale dropped considerably, and several people left the restaurant chain. This made the restaurant slow down the “hospitality-included” implementation plan to manage the dispute. A former manager at the restaurant stated, “The majority of our strongest people have left”.
An employee mentioned that once the hospitality- included policy was implemented her per annum income dropped by CAN$ 10,000 from CAN$ 60,000 to CAN$ 50,000.
Affected workers felt that the changes resulted in more turmoil and demotivation than expected as more than the expected number of employees left the restaurant. This attrition included not only frontline but some of the backend employees as well. Several veteran servers stayed to begin with, after a few months they realized that they could not bear the pay cut and quit.
Although employees recognized the benefits, still deduction in pay could not persuade employees to stay back. Some employees believed that their expectations of this change were set much higher, which was difficult to be realized. One of the employees stated, “We were all believing that we were going to be making what we were making before”.
According to the employee, that was the explicit promise. During a meeting with all employees, Brown stated, “The waiters at our restaurants, when we eliminate tipping, will make as much or more, in 75 percent of cases, than they’re making right now”.
However, according to employees, this is not what happened. Brown made that promise assuming that by changing the tipping policy, the business at the restaurants would not change, which was not the case. Customer visits instead dropped, and a portion of the servers’ wage was directly tied to the restaurant’s revenue by virtue of the revenue-sharing program. As revenue dropped, employee wages also declined under the variable pay component. Consequently, within a few months of implementing the no-tipping policy, employees began to leave.
Response of Customers
Service-inclusive pricing was not acceptable to consumers. Not only did their percentage of visits to restaurants decline, but through online reviews, they also expressed their discontent with hospitality-included pricing. The overall rating of restaurants with hospitality-included policy decreased with the policy stated as the main reason. In a survey conducted in 2016, approximately 60% of customers expressed displeasure with the no-tipping policy, which led to an “8 percent to 10 percent” drop in customer visits.
The fast attrition at the restaurants resulted in hiring underqualified and undertrained staff to fill the gap. At the restaurants where customers came for exceptional service, the management was experiencing service issues.
1. Using the ADKAR change management model, explain why the change management process this restaurant failed?
2. Using Kotter’s 8-step change management model, explain what the CEO, Steve Brown, should have done differently?