It’s time for the restaurant business to look beyond cost-cutting and seek growth through process innovation.

1. • Cognizant 20-20 Insights
Setting the Table for Growth:
Global Sourcing and Transformation
in the Restaurant Industry
Executive Summary Finance and accounting (F&A) processes make
a particularly good place to begin the managed
With the worst of the recession behind us and
business services journey, especially for companies
consumer spending showing signs of life, it’s
that prefer to take a risk-averse approach to func-
time for the restaurant business to look beyond
tion-based BPO. With restaurants’ higher number
cost-cutting and seek growth through process
of vendors, accounts payable (A/P) is a top cost
innovation.
center, and the large volume of hourly and part-time
Restaurants and hotels began many years ago to employees similarly pushes efficient payroll
outsource their IT operations as a path to greater operations to a high point on the priority list.
efficiency. Now, for the first time, they are looking
As multi-unit restaurant chains begin to see the
to globally source processes —
benefits of managed business services, they
Managed business also known as business process become more willing to venture into functional
services can offer outsourcing (BPO), or managed areas such as restaurant operations support,
business services — as a way to
the agility necessary achieve cost efficiencies while restaurant accounting, treasury, payroll, franchise
support, fixed assets, project accounting, lease
for a restaurant setting their tables for core accounting and gift-card accounting. As such, they
business growth.
chain to globalize seek an integrated global sourcing approach. Out-
its operations Taking advantage of managed sourcing A/P to a cost-effective managed business
services provider that can leverage scalable hori-
— shrinking and business services is a way for res-
zontal-function efficiencies across customers can
taurants to contain the volume
growing as dictated and diversity of cost center- be a quick and easy way to reduce costs, while
by new markets and related operations and data. This preserving the human and technical infrastructure
that will serve internally as a platform for revenue
acquisitions. is important, as the restaurant
growth. Managed business services can offer the
industry has a much higher
number of process stakeholders, including vendors, agility necessary for a restaurant chain to globalize
hourly employees and contractors, compared with its operations — shrinking and growing as dictated
companies of similar size. by new markets and acquisitions.
cognizant 20-20 insights | february 2011

2. Industry-Focused Services industry understand nuances such as “restaurant
accounting,” which involves tracking the cost
The tough economy of the past two years has
of a menu item based on the aggregate cost of
altered the restaurant and hospitality landscape.
each ingredient in that item. To make one plate
Consumer confidence is slowly returning, but
of salad, for instance, might require purchasing
pre-recessionary growth levels will be harder to
lettuce, vegetables, croutons and dressing from
achieve as unemployment continues to affect dis-
10 or 15 different vendors. A managed business
cretionary incomes. Expectations are being reset
services provider understands how to track the
quite dramatically in the restaurant industry, as
plate cost of menu items appropriately, thus
they are elsewhere in the economy, to reflect
providing essential information for price setting.
changed circumstances. Companies that thrive
The provider can then share best practices across
in this new environment will optimize costs while
clients.
nurturing growth. To get there,
Restaurants restaurant companies can build Companies that globally source their F&A
can achieve a platform of efficiency that
will generate cash immediately
processes retain key personnel — managers and
subject matter experts. BPO frees these indi-
greater flexibility and position businesses to leap
viduals from their day-to-day responsibilities so
and scalability ahead of competitors as the they can spend more time improving processes,
economy continues to recover.
without having to analyzing costs and providing best-in-class hospi-
tality by driving initiatives that exceed customer
choose between Interest in managed business
expectations.
cost reduction services is high and continues to
grow because it offers solutions
and process that don’t require compromise.
Beyond F&A
improvements. Restaurants can achieve greater F&A is indeed a good starting point for restau-
flexibility and scalability without rants interested in managed business services. The
having to choose between cost reduction and upfront investment is low, and start-up is usually
process improvements. Through managed business straightforward due in large part to the availability of
services, restaurants can generate the cash needed well-documented procedures. However, restaurant
to invest in an efficiency platform that will support companies that stop at F&A will leave many benefits
future growth, be it organic or through acquisition. and cost savings on the table. Beyond F&A, general
ledger, restaurant operations support, restaurant
Global Sourcing of F&A Processes: accounting, treasury, payroll and franchise support
Quick Cost Savings are all fruitful areas for managed business services.
For example, franchise companies can offer their
Most companies begin their F&A global sourcing
franchisees the option of paying one monthly fee to
journey with either or both of the following
the parent for such functions as payroll, accounting
processes:
and store operations support. Today, franchi-
1. Accounts payable: Once the invoice is sees tend to be small to medium-sized businesses
submitted to the payment system, processing without access to sophisticated IT systems and thus
occurs. Globally sourcing this aspect of A/P often accomplish these functions on their own. With
offers a cost advantage because the services ad hoc processes and arcane systems, franchisees
provider can process greater volume than any typically have little ability to invest in technology.
individual company.
A large franchise company can engage a managed
2. Payroll: Time and attendance is submitted
business services provider to create a standard-
to the system at each restaurant location
ized set of business processes and systems for
and later processed remotely by the services
their franchisees. Otherwise, it would be difficult
provider. Globally sourcing this process
for a franchisee to identify and leverage estab-
reduces the cost of performing this repeatable
lished best practices. Propagating best practices
process, in addition to exception-based items,
throughout the system will reduce per-restaurant
such as off-cycle checks, missing checks and
and per-employee costs, enabling franchisees to
garnishments.
avoid the need to maintain their own back-end
The client benefits from continual improvement, systems. At the same time, the parent company
as the provider hones its processes for clientele benefits from the reduced cost of processing due
in the same industry. For example, managed to the increased volume of consolidating multiple
business services providers in the restaurant franchisees on one platform.
cognizant 20-20 insights 2

3. Franchisees also benefit greatly from day-to-day Case Study: A Profitable Engagement
operational support. For example, if a customer’s for F&A Global Sourcing
coupon will not scan in the system, the cashier
Beginning in 2008, we helped a leading U.S. casual
can invoke operational support for help in solving
dining company achieve benefits with managed
everything from menu ingredients, to promotions,
business services. This company began outsourc-
to store technology.
ing its IT operations a decade ago and became
These services can be implemented for home- interested in F&A managed business services just
grown systems or through commercial-off-the- recently. Although corporate management was
shelf (COTS) products like ERP packages or enter- averse to taking on much risk, the downturn forced
prise point-of-sale (POS) systems. Corporate and the company to look more closely at costs.
back-office operations can include master data
This company pays out a high percentage of its
maintenance, menu and restaurant lifecycle main-
revenues in overhead expenses — more than a
tenance, menu price updates, above-store reports
quarter of its annual expenditures. Its A/P depart-
maintenance and treasury operations. Some oper-
ment, therefore, was a major cost center. Senior
ations might need more interaction and a longer
management was convinced F&A managed busi-
ramp-up to achieve a steady state of support due
ness services could help the company reduce A/P
to the specifics and complexity of restaurant busi-
costs significantly as a starting point. With that
ness operations; however, efficiency, cost savings
phase complete, it planned to globally source
and process throughput increases. Other areas
several other F&A processes, including payroll
that would benefit from managed business ser-
management and restaurant
vices include:
accounting, for an expected total We have worked with
• Restaurant operations support/help desk annual cost savings of 38%,
the leader of casual
• Franchise operations and administration resulting in millions of dollars in
savings, productivity improve- dining in the U.S.,
• Inventory/supply chain
ments of 5% per year and accu- but we believe only
• Marketing and promotions racy rates of 98% or higher.
two or three major
• Risk, audits and compliance
The strategy: By entrusting us U.S. restaurant
The Business Case for to manage end-to-end back- companies have
Managed Services office operations to achieve cost
efficiencies, more than 100,000 begun to leverage
Globally sourcing IT is common in the restaurant
and hospitality industry. Managed business employees would be free to con- F&A managed
services, however, is in its earliest stages of centrate on core processes. The business services.
adoption. We have worked with the leader of managed business services work
casual dining in the U.S., but we believe only was to be carried out by a joint team consisting
two or three major U.S. restaurant companies of 100 internal employees handling front-office
have begun to leverage F&A managed business operations and nearly 100 of our employees
services. Most are still evaluating the situation, located both on and off the client’s premises.
although with every passing day, the risk of doing
Phase 1 included managed business services for
nothing grows.
the following 12 A/P and Fixed Assets processes:
In most cases, the services provider operates the
restaurant’s financial systems remotely, as in the
• Invoice processing
classic outsourcing model, rather than “renting” • Payment approval process
the application to the client and running it off- • Item/recipe maintenance
premises, as in a “cloud” model. Some restaurant
companies do have interest in globally sourcing all
• Electronic invoice processing
of their IT operations so they won’t have to own • In-house transfer processing
any hardware and software. In our experience, • Petty cash invoice processing
however, most major restaurants do not currently
feel comfortable with cloud computing. The data • Reconciliations
that resides on their systems can be sensitive, • Procurement administration
and they are not yet ready to surrender control of
their data, and with managed business services,
• Capital project set up and tracking
that is not necessary. • Asset capitalization and depreciation
cognizant 20-20 insights 3

4. • Quarterly and annual audit schedules In addition, the company has achieved its
secondary objective of installing a more scalable
• Capitalization policy compliance support
and flexible model to meet its staffing needs. For
Nearly 50 full-time employees were required to run instance, when it recently sold off two restaurant
the in-house A/P department. Globally sourcing chains, our arrangement made it easier to
these processes would allow the restaurant chain right-size the staff while providing reliable back-
to immediately reduce headcount. office accounting services during the transition.
Our support of the restaurant The vice president of accounting for the restau-
Two years into company goes beyond F&A. rant company feels the engagement has been a
the multi-year As a trusted industry-based major success. The company has retained control
managed business services and accountability for its F&A processes while
engagement, the partner, we helped our working synergistically with the off-site team.
restaurant chain client implement solutions “We are one, integrated team,” he says.
is tracking well and process improvements
to address industry-specific Exploring Other Global
toward its objective challenges, including gift-card Sourcing Options
to achieve 30% loyalty management, back- The restaurant industry is now moving toward
to 40% savings of-house (BOH) applications, enterprise COTS product-based operations to
labor-scheduling systems,
in the delivery of online ordering and food
reduce operational complexities and gradually
sunset its maintenance-cost-intensive legacy
accounting services usage variance reports systems. These COTS products, encompassing
to the organization. (especially for high-cost restaurant industry best practices and legacy
inventory items). IT maintenance operations, can be entrusted
to managed business services providers. The
In subsequent phases, based on increased knowl- following are at the top of global sourcing lists:
edge and performance achievements, the restau-
rant company globally sourced these additional • Enterprise POS systems
processes:
> Restaurant lifecycle maintenance
• Restaurant accounting > Field employee lifecycle and roles mainte-
nance
• Payroll processing
• Lease property accounting > Restaurant-to-field employee alignment
• Treasury reconciliation > Menu and condiment item lifecycle configu-
ration maintenance
• Account receivables
> Menu item pricing updates
• Gift card accounting
> Inventory item lifecycle configuration main-
• Financial system support and consulting tenance
To smooth the communication between the > Data file movements between distribution
teams, we created a workflow interface that center and enterprise POS system
helps information flow seamlessly between the
two teams and the client’s other third-party
> Recipe management
partners. Another of our teams was already in > Implementation of corporate master data
place providing IT global sourcing services, and into the enterprise POS system
the IT-managed business services synergy aided > Labor scheduling
the transition and processes.
• Business intelligence and above-store reporting
Two years into the multi-year engagement, • Restaurant help desk
the restaurant chain is tracking well toward its
objective to achieve 30% to 40% savings in the For the last couple of years, some leading U.S.
delivery of accounting services to the organiza- quick-service restaurants (QSR) and casual
tion. The accounting group has seen higher levels restaurant organizations have undertaken
of job satisfaction from retained employees as major initiatives to manage corporate opera-
they are now able to work on more strategic ini- tions (including overseas operations) through
tiatives and job functions. global sourcing. We have gained credentials
cognizant 20-20 insights 4

5. in enterprise POS systems configuration main- based BPaaS (business process as a service)
tenance operations through our work with a would be the right choice. They are the best
leading global QSR brand based in the U.S. contenders in encompassing optimization of
process, technology and people for a specific
Picking the Right Provider industry sector. Providers in this category not
Managed business services providers are prolifer- only have the flexibility of traditional managed
ating as the benefits become clear. Though it may business services, but they can also employ indus-
be tempting, it can be risky to try experience and domain expertise for specific
Understanding the engage the lowest cost provider, customers, thereby reducing their own operation-
al risks, as shown in Figure 1.
dual short- and as providers that solely focus
long-term benefits on able to bring industry-based
not
cost reductions are often
Restaurant organizations beginning their
managed business services journey are advised
of a managed best practices to bear. In the
to partner with a mature service provider. This
business services long run, this level of provider partner should start with legacy managed
program in tough cannot offer the advantage
of process improvements and
services for departmental functions and then
help the organization gradually transition to
times is one thing; reduced risk by applying best
an integrated, standardized, configurable and
choosing the best practices tailored to the restau- vertical managed business service. This approach
rant and hospitality industry.
partner is another. best enables the organization to be cost efficient
Understanding the dual short- in a desired payback period and quickly synchro-
and long-term benefits of a managed business nize with industry best practices.
services program in tough times is one thing;
Restaurant companies typically run on legacy
choosing the best partner is another.
fragmented enterprise applications, often with
The major differentiator for restaurant managed suboptimal performance. By contrast, industry-
business services is that these services require much based managed business services providers
more specific knowledge that calls for expertise in focused on restaurants are better suited at mod-
industry-standard best practices, deep knowledge ernizing legacy applications, thereby reducing
of restaurant-specific operations and adeptness in operational costs in a predictable timeframe.
handling related IT systems and processes.
Key considerations for service provider selection
Service providers with the process and knowl- are capabilities, track record, approach, price,
edge maturity to transcend from horizontal- value and the quality of the client experience.
function-oriented legacy managed business Make sure that consulting is part of the package
services, to new-age vertical industry practice- and not an expensive add-on, and that it is prag-
Case Study’s Risk Priority Number (RPN)
Before and After Control Implementation
150
120
90
60
30 RPN After Control
RPN Before Control
0
Mail Allocation Webex Check Duplicate Search Key Item
& Follow Up Downtime Payment Invoice Number
Duplicate Payments Eliminated
Figure 1
cognizant 20-20 insights 5

6. matically suited to these post-recessionary times. With more efficient processes, restaurant
It also pays to work with a service provider that companies are not only scalable enough to
can blend vertical managed business services take on more work at less cost and to flex with
with IT in a single, coordinated approach. The demand, but they are also positioned to capitalize
fewer hand-offs, the better. on growth when conditions improve.
Questions to ask your potential industry-based We have already established ourselves as a
managed business services provider include: successful and mature industry-based managed
business services provider to the restaurant
1. How can you help my business grow? What
sector. We are gradually adopting business
business advantage can I obtain by entrusting
traits of the emerging BPaaS model. Industry-
this process to you?
based managed services providers have a clear
2. When there are issues, are you organized to advantage over traditional SaaS providers, as
resolve problems quickly? What is your track they can employ customer-centric offshore
record for doing so? delivery systems while not compromising on
3. What can you offer me in terms of geographic customer data and processes and leveraging
expansion and innovative deal structuring? industry best practices.
4. Can you take over my captive data center or
Restaurant-focused managed business services
buy it from me?
providers can yield both the cash and human
5. Are you willing to commit to a price that’s resources needed for future-looking initiatives.
locked in? Reducing back-end costs frees resources to be
6. How agile is your organization to support my devoted to the all-important customer-facing front
changing requirements? end. Once the initial concept has been proved,
7. What are your data security processes? Do the real advantages lie ahead. Vertical managed
your network systems meet our criteria for business services can position your company to
standards and performance? take advantage of the upswing by letting you
reallocate your best people to revenue-generating
8. What processes would you put in place to
projects.
optimize our total cost of ownership (TCO)?
9. What is your performance track record of
adhering to service level agreements (SLAs)?
10. What are your lead times for introducing new
capabilities?
About Cognizant
Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-
sourcing services. Cognizant’s single-minded passion is to dedicate our global technology and innovation know-how,
our industry expertise and worldwide resources to working together with clients to make their businesses stronger.
With over 50 global delivery centers and more than 100,000 employees as of as of December 1, 2010, we combine a
unique global delivery model infused with a distinct culture of customer satisfaction. A member of the NASDAQ-100 In-
dex and S&P 500 Index, Cognizant is a Forbes Global 2000 company and a member of the Fortune 1000 and is ranked
among the top information technology companies in BusinessWeek’s Hot Growth and Top 50 Performers listings.
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