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by Robert Green

On March 7, 2002, President George W. Bush and Commerce Secretary Don Evans presented five organizations with Malcolm Baldrige National Quality Awards in recognition of their performance excellence and quality achievements. Among the winners was Pal's Sudden Service, which won in the small business category.

 Pal's Sudden Service, a privately owned, quick-service restaurant chain, serves primarily drive-through customers at 17 locations, all of which are located within 60 miles of Kingsport, Tennessee, where its first restaurant opened in 1956. Diligently working to standardize high levels of both product and service quality, Pal's currently enjoys the second greatest market share (19%) in its region, competing with local and international fast-food chains.

 The company employs about 465 people, 95 percent of whom are in direct production and service roles. 2001 sales for Pal's restaurants totaled about $17 million. The Pal's Business Excellence Process is among the most mature in the industry, involving, for instance, SPC charting by store and process. Line workers even plot how their own processes are running.

 Pal's is currently benchmarking educational organizations, as training is such a big part of doing business in an industry with constant turnover, which Pal's has also improved to three times better than that of its best competitor for which such data is available.

 What follows is an interview with CEO and President Thom Crosby. This is the first of five interviews, conducted with a representative from each 2001 Baldrige Award winner, that will be published in consecutive issues of Quality Digest.

Quality Achievements   Pal's customer scores for quality in 2001 averaged 95.8 percent, as compared to 84.1 percent for its best competitor.   Pal's order handout speed has improved by more than 30 percent since 1995, decreasing from 31 seconds to 20 seconds. Its competitors' performance increased from 73 seconds to 76 seconds during the same period.   Pal's has reduced customer complaints from three per 1,000 transactions to just four per 10,000 transactions.   Even in the current economic situation, with substantially decreased sales and profits throughout the hospitality industry, Pal's sales continue to increase.   Pal's Business Excellence Process spans all business operations, from strategic planning to online quality control. Every component process, including those for continual improvement and product introduction, is interactively linked, producing data that directly or indirectly inform the others.

QD: Congratulations on your win, and thank you for taking the time to tell our readers about your Baldrige journey. How long have you been with Pal's?

Crosby: I've been with Pal's for about 20 years. I started out in October 1981 as an "owner/operator."

QD: What led Pal's to the Baldrige criteria?

Crosby: What got us interested is that the 1993 Baldrige winner Eastman Chemical Co., is based here in Kingsport. A gentleman from that company named Mike Lewis was a regular customer. He kept coming by and saying, "I want to sit down and talk to you about something I think you would be a natural fit for." We listened to him as he explained the Baldrige to us.

 As we looked closer at it, we decided that this was something we may be interested in. As we started doing some research and looking more at the criteria and award, everybody we talked to would begin by saying, "Let me tell you why this is so important to us. Let me tell you about my wake-up call." They would then proceed to tell us how they had lost a major client, or were about to lose a major customer, or they were in financial trouble. They basically had problems. But we were doing great.

QD: What convinced you?

Crosby: Eventually we realized that it was a good, solid system for assessing and improving a business. We then looked around to compare this to everything else available to make sure it was right for us. We chose the Baldrige because, from our review, it appeared to be the most robust and most dynamic. It seemed like it was really focused on the overall business--helping us improve our whole business and not just individual components--and it was dynamic in its structure in the fact that it was going to assist and improve itself according to those people using it.

QD: When was that?

Crosby: In July 1994, we decided we were going to use the criteria, and award process, because it's a wonderful way to get us focused. It sets deadlines and it also sets a series of criteria for expectations: Your assessment is done and it's written. That gave us the motivation to really get the job done.

QD: Did you begin with a Baldrige-based state award?

Crosby: Yes, we started off using the criteria and the award processes through the Tennessee Quality Award. The Tennessee award was a great model for us to start with because there are no losers. It's a four-tiered process, and companies can apply at whichever level they think they're at. Then the examiners do an assessment and you win, but maybe at a different level.

QD: Take our readers through the progression up through the first application for the Baldrige.

Crosby: We applied for the Tennessee Quality Award at the highest level in 1996. We were recognized as a winner at level three. We decided that in 1997 we were going to step away from the award process and strictly work on the improvements identified by the feedback report. In 1998, we felt like we were ready to step into the national arena. We wrote an application for the Malcolm Baldrige Quality Award.

We made it to consensus but not to the site visit. We decided that 1999 was another good year for us to take off to strictly work our way through the feedback report and work on the improvement projects. Then in 2000 we applied for the Baldrige and received a site visit. In 2001, we decided we would apply for both the Tennessee Quality Award level four and the Baldrige. We won both and were the first restaurant company to achieve either.

QD: You mentioned that Pal's was interested in different quality improvement programs when you were first introduced to the Baldrige. What were those and what were their shortcomings?

Crosby: Our evaluations of the systems would be a little different now. But we looked at ISO 9000 and we felt that it was more of a paper-driven process, although we do believe it's evolved since then. We also looked at the Deming Prize criteria but thought we were too small. And we looked at Six Sigma, which was a little scary because it was focused on creating experts and driving out variation and waste from your processes. It looked like it might be hard to manage, and unless you really had tight controls and a heavy top position to administer it, it's one that could allow people to get out of control.

QD: Is there any Baldrige element, or the award process in general, where you think there's room for growth?

Crosby: If you'd asked me in previous years, I would have maybe said, "No, I feel like the criteria's pretty solid." Asking me this year, I've got a very specific place that we feel there could be improvement. In 2001, they took out the supplier relationship criteria. They said a lot of the companies, given their size, can't have any influence or major impact on their suppliers. And we told the people at NIST, "That's wrong."

 We have a major influence on our suppliers. The first piece of "assess and improve" that we did was in the category of supplier relationships. We were in a situation where we had multiple suppliers. We had a redundancy factor. We also had competitive bidding going on. By using the criteria to assess and then going out and saying, "What are the best-known methods, and what are we doing?" we went from 21 suppliers to four. Our cost of goods reduced by 10 percent, which all dropped to the bottom line. Over the years we've been able to have a tremendous impact on suppliers and supplier relations just because of the criteria and using it to assess and improve how we were working with suppliers. So we really hated to see that the Baldrige elected to drop that out of the criteria.

QD: In reference to the Deming Prize, you mentioned expense. Have you quantified the cost of your entire Baldrige journey?

Crosby: To do that, we put a dollar value to time plus the hard dollar cost. Basically, we can start the clock running in 1995. From 1995 to today we have invested just slightly more than a half million dollars. That includes improvement projects, and learning and application fees--even the money we put into celebrating wins. The return on this investment is one of the highest we've ever seen. We're estimating the ROI at slightly north of 600 percent.

QD: What does that ROI figure include?

Crosby: We try to plot where we are today in sales and profitability and run a trend line that projects where we would have been without Baldrige. We have a long history of trims, and we look at that in relationship to each given year since we've been using Baldrige. We use our historical trend plus or minus what was going on within our industry. We're talking about hard dollar returns: money in our pockets.

 More information about Pal's is available at the company's Web site, www.palsweb.com . For further information (including company profiles, contact information and application summaries) about current or past Baldrige Award winners, visit the National Institute of Standards and Technology's Web site at www.nist.gov/public_affairs/releases/g01-110.htm  .

About the author

 Robert Green is Quality Digest's managing editor. E-mail him at contact_us . Letters to the editor regarding this piece can be e-mailed to letters@qualitydigest.com .