9 pages
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4751 words
Iit Bombay
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Organizational Behaviour

Haidilao 2018- Demystifying Restaurant Employee

January 11, 2021
This case was prepared by Xiaoming Zheng and Ziqian Zhao of Tsinghua University School
of Economics and Management as the basis for class discussion rather than to illustrate either
effective or ineffective of an administrative situation.
Copyright © Tsinghua University School of Economics and Management. No part of this
publication may be duplicated, transmitted or used in any form or by any means without the
permission of Tsinghua University School of Economics and Management.
Haidilao 2018
Xiaoming Zheng, Ziqian Zhao
Version Date: 2018-6-3
Product No.: TU0102
Haidilao 2018: Demystifying Restaurant
Employee Motivation
Haidilao (HDL), one of the leading Sichuan-flavor hot pot restaurant chains in China,
servicing over 100 million customers per year, went public in September 2018. The explosive
news pervaded every business section of the Chinese press. HDL seeking a public listing aroused
considerable attention, as HDL had been compared with the franchise chain Little Sheep, the
so-called “First-ever Chinese hot pot stock,” which had been delisted and privatized by the Yu m
Group in 2014 after six years of being a public company.1 Haidilaos growth had explosively
accelerated before pursuing the public listing. By the time of its listing, HDLs market
capitalization was eight times that of the second place in hot pot catering chains, Xiabu Xiabu.2
HDL adopted the direct operations model, featuring passionate waiters and highly personal
service that usually exceeded customer expectations. A book about HDLs service and personnel
became a bestseller in 2011 and in later years the company gained a reputation through word of
mouth for delivering good service that went against nature.”3 However, ever since HD started in
1994, the company had been facing a serious growth challenge due to its apparent lack of
sophisticated restaurant managers. HDLs co-founder, Zhang Yong, consequently experimented
with a new incentive system for restaurant managers and achieved huge success. Thus, the
operations in 2017 delivered great progress, with the number of new outlets and the overall
financials both showing breakthroughs (see Exhibit 1). Zhang was very satisfied with the growth
speed, but he also knew that the company had to strengthen its management to prevent food
1 “From Public Listing to Delisting! Reasons Why Hot Pot Legend Little Sheep Stumbles,” QQ.com, May 30, 2016,
accessed November 7, 2018, http://stock.qq.com/a/20160530/009391.htm.
2 Xiabu Xiabu served Taiwanese mini hot pot in a bar-style environment rather than HDLs traditional roundtable style
with shared food and condiment pots.
3 Yong Chengjie, “HDL’s Incomparable Service Went Against Nature, Have You Experienced It?” Sohu.com, March
30, 2018, accessed April 28, 2019, https://www.sohu.com/a/226794608_100108393.
This document is authorized for use only in Prof Shivganesh Bhargava's OB & HR-I at Shailesh J. Mehta School of Management (SJMSOM) from Nov 2019 to May 2020.
Haidilao 2018
safety incidents. Another challenge was how to grow in the overseas markets. HDL had been
trying to tap overseas markets for years, but they failed to show outcomes as successful as
mainland China. Would the incentive system work just as well in these markets if it was
Endogenous Growth
In many Chinese cuisines, hot pot featured a self-service dining style and customized
multi-flavor condiment base soup. Food preparations were no more complicated than washing,
cutting, and presenting food. Key to success of a hot pot restaurant brand was food quality, base
soup formula, and service (including dip sauce variety, employee attitudes, restaurant
environment, dining entertainment, and other creative services such as video games, shoe
polishing, and manicures while waiting for a table).
HDL had built an advanced central kitchen and supply chain. Its base soup ingredient
production factory, Yihai International, grew fast and went public in Hong Kong. Yihai was
HDLs sole base soup provider and HDL accounted for half of its revenue. HDLs growth in 2017
and 2018 boosted Yihai’s stock price and had pushed it to grow tenfold since Yihai’s initial public
offering in 2016.
HDL employees’ enthusiastic and creative service usually exceeded customer expectations.
HDL offered free shoe shining and manicures for waiting customers, which were imitated by
many restaurants all over China. Many scholars had followed HDLs growth and had written
books about the company. They made various observations: First, empowerment had been the
companys cultural tradition since its inception (regular waiters had the power to waive a certain
portion of bill for irritated customers). Second, the company offered exceptional salaries and
employee welfare such as housing and children’s day care and school. Many employees felt high
self-esteem because they found themselves in a much better condition than workers in other
restaurants. They tried to pay back Zhang and HDL with more effort and high spirits at work.
Third, HDL equipped its employees, most of whom came from rural areas or small towns, with
knowledge to help them adapt to metropolitan life and gave them opportunities to grow into
restaurant managers. In fact, the CEO of HDL and nearly all senior managers in the operations
function came from within, which demonstrated the company value of “change your future with
two hands” and the company culture of “benevolence.”
For employees to internalize the company’s values and culture, the company practiced
another cultural element: “fairness and equality.In an HDL restaurant, the restaurant manager
needed to be able to distinguish service excellence from mediocrity. He had to be familiar with all
operational details in order to be able to fairly and convincingly reward or punish subordinates.

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