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Master Thesis

Development of a Tool to Evaluate Restaurants’ Business Performance:

A qualitative approach in the gastronomy industry in the Netherlands

M.Sc. Business Administration – Strategic Innovation Management Faculty of Business and Economics

University of Groningen June 2018

Student: William Nikolaus Ernest Marty – S3107647 Thesis Supervisor: Dr. Wilfred Schoenmakers

Co-Assessor: Dr. Wim Biemans

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Abstract

So far, an overarching management tool, which combines not only monitoring but also evaluating non-financial performance, is missing in existing research on restaurant performance. Therefore, this study aimed to develop an application, that allows to measure a restaurant’s performance integrally. The tool development was approached with a multi- method qualitative research design, which includes three data collection phases. While the first phase validated the literature-based starting point, the second and third phase quantified the underlying assumptions of the scan tool and validated its results. The study result is a tool, which is validated through various research steps, based on literature and primary data, that allows to assess all relevant aspects, which influence a restaurants business performance, and to identify potential problem areas of the internal operations and service delivery.

Keywords – Performance Evaluation, Gastronomy, Service-Profit Chain, Food Service

Industry

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Tablet of Content

Introduction ... 4

Theoretical Introduction ... 8

Methodology ... 11

Research Steps... 12

Controllability, Reliability & Validity ... 16

Literature Review ... 17

Conceptual Framework ... 22

Validation of Theoretical Foundation... 25

Operationalisation ... 29

Factor Operationalisation ... 29

Score Calculation ... 34

Results ... 36

Evaluation ... 36

Feedback ... 39

Discussion & Conclusion ... 41

Discussion ... 41

Conclusion ... 43

Practical Implications ... 44

Limitations & Future Research ... 45

References ... 46

Appendix ... 50

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Figures

Figure 1: Research Stages ... 15

Figure 2: Service-Profit Chain (Heskett et al., 2008) ... 23

Figure 3: Conceptual Framework ... 24

Figure 4: Section & Factor Weightings ... 27

Figure 5: Structure of Operationalisation ... 29

Figure 6: Factor Operationalisation ... 34

Figure 7: Score Calculation ... 34

Figure 8: Average Section Scores ... 36

Figure 9: Consistent over-average performance in all sections ... 37

Figure 10: Inconsistent performance levels in the two early and four later sections. ... 37

Figure 11: Score Correlation ... 38

Tables Table 1: Influencing Factors per Section ... 21

Appendix Appendix 1: Table of content of an example business plan (Barringer, 2015) ... 50

Appendix 2: Codebook ... 51

Appendix 3: Interview Guide Round 1 (Theory Validation) ... 53

Appendix 4: Interview Transcripts – Interview Round 1 ... 62

Appendix 5: Cumulated Distribution Weights – Interview Round 1 ... 78

Appendix 6: Interview Guide Round 2 (Business Performance Scan Tool) ... 79

Appendix 7: Example Score Calculation ... 97

Appendix 8: Sample Description – Interview Round 2 ... 98

Appendix 9: Raw Data – Interview Round 2 ... 99

Appendix 10: Example Result Report ... 100

Appendix 11: Interview Guide Round 3 (Feedback Survey) ... 104

Appendix 12: Raw Data – Interview Round 3 ... 105

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Introduction

Business performance measurement or evaluation is an essential part of business conduction, since understanding the circumstances, which have led to the status quo of performance, can bear significant potential for improvement in the future. Therefore, managers apply performance measurement to observe the current level of performance, to then evaluate why the current level occurs, in order to base future decision on grounded data (Guerra-López, 2007;

Johri, 2010).

The first tools to measure and indicate performance levels go back the 19

th

century, when a Scottish miller used painted wood pieces over the desks of his workers to indicate their working performance (Ofori-Boateng, 2017). Since then, the field of business analysis generated various tools, which should support business analysts, researchers and managers to approach the assessment of business performance. The superordinated goal of the application of these tools is to get a clear, undistorted picture on the current state of affairs and to identify pain points which offer room for improvement (Guerra-López, 2007; Johri, 2010). These two tasks are related to each other. To identify potential opportunities for further performance improvements, monitoring is needed as a starting point. Just when the analysing manager has a clear picture on the current level of performance, the application of analysis and problem-solving tools can unfold their true potential. Apart from further strategy definition and implementation techniques, the tools currently available reflect only one of these two main tasks of business analysis at the time and therefore either monitor performance or support a problem- solving/analysis process in order to improve performance (Cadle, Paul & Turner, 2014).

More specific, the current monitoring tools, which are needed as a starting point for the later

analysis process, suffer from two particular issues. First, monitoring tools, as for instance Key

Performance Indicators in a Balanced Score Card, can help to keep track of the current level of

performance, but initially do not tell a manager at which specific parts of the company to look

at. And when a firm selected its important elements to assess, it might be difficult to recognize

an appropriate level of these KPIs and the relation between them (Richards, 2018). This also

relates to a missing commonly applied definition of performance, which can be abstractly

described as “the accomplishment of a given task measured against a preset of known standards

of accuracy, completeness, cost, and speed” (BusinessDictionary.com, 2018). The

implementation and application of a tool has to be developed by every firm itself. And this is

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specific issue (Johri, 2010). These two circumstances might potentiate each other and bear significant risk, since first the business analyst has to select an appropriate tool and then recognize suitable measures.

As mentioned previously, monitoring business performance, in any way, probably plays a role in most businesses (Johri, 2010). But this assumes that there is a manager or a unit dedicated to this task. An industry, where business analysis is mostly reduced to only financial measures and operational KPIs, is the restaurant industry (Salehzadeh, Khazaei Pool, Tabaeeian, Amani

& Mortazavi, 2017; Reynolds & Biel; Reynolds & Thompson, 2007). This might be due to its characteristics, which differentiates it from other service industries. Demand is just hardly predictable, occurs strongly to specific peak times, and is influenced by the time of the year or specific events, for example sport events. The production system involves various skilled and unskilled staff members, who have to handle the products properly over the whole preparation process (Kanyan, Ngana & Voon, 2016). Also, restaurants continuously adapt their menu in order to offer constantly new tastes to their customers and match the supply of currently available ingredients (Kanyan et al., 2016). The success of a restaurant lies in its ability to ensure a smooth and efficient interaction between the involved parties, while differentiating itself with a consistent high degree of service quality (hcareers.com, 2013; Ingram & Jones).

So, even though financial performance gives an indication of the ‘health’ of the business and is strongly correlated to productivity, these specific characteristics provide significant challenges for managers and make financial measurements as an exclusive factor for performance evaluation insufficient. Financial numbers may reflect the final results of the business efforts but are not able to give insights into the levels of performance in the actual production system and are consequently not able to pinpoint potential problem areas (Reynolds & Biel, 2007).

Research is conclusive that performance evaluation must contain also non-financial measures to accurately measure performance (Salehzadeh et al., 2017; Kuwaiti, 2004, Reynolds & Biel;

Reynolds & Thompson, 2007) and a monitoring tool, designed for restaurants, needs to take all these elements and aspects of a restaurant into consideration. At the same time, there is already extensive research, on which factors influence restaurant performance, how they are related and what problems might arise, as for example perceived service quality, customer satisfaction or staff turnover rate (Bufquin DiPietro, Park & Partlow, 2017; Gupta, McLaughlin & Gomez, 2007; Jeong & Jang, 2011; Koys, 2003; Koys & DeCotiis, 2015; Qin, Prybutok & Zhao, 2010).

However, even though, there is a big pool of monitoring tools available, which should help

managers to monitor performance, and a range of studies, researching on relations of restaurant

performance (Assaf, Deery & Jago, 2011; Bufquin DiPietro et al., 2017; Gupta et al., 2007;

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Hallak, Assaker, O’Connor & Lee, 2018; Jogaratnam, 2017; Heo, 2017; Kim, Jun, Tang &

Zheng, 2015; Koys, 2003; Koys & DeCotiis, 2015; Kim, Li & Brymer, 2016; Lee, Hallak &

Sardeshmukh, 2016a; Lee, Hallak & Sardeshmukh, 2016b; Mao & Gu, 2008; Reynolds & Biel, 2007; Reynolds & Thompson, 2007; Salehzadeh et al., 2017; Tse, 1991), so far no research was able to connect these two perspectives to create a framework, that captures and assesses performance integrally, apart from financial or operational measures. The lack of such an acknowledged framework, both in practice and past research, is surprising, since restaurants must face similar performance problems and therefore look into and try to improve the same elements.

This study aims to connect the practical and theoretical perspective, for the sake of identifying relevant factors, influencing and reflecting a restaurant’s performance, based on existing literature and interviews and integrating them into a tool, which captures relevant parts of a restaurant, allowing anyone to efficiently evaluate and monitor operations in order to give specific recommendations for improvements.

This leads to the following research question: Can we build an integral tool for measuring performance, that allows us to pinpoint problem areas in a restaurant?

However, the answer to this question will just give insights into the process of development, but not into what the tool contains or how it looks like structurally. As previously mentioned, financial performance as a main measure for evaluation is not sufficient, due to its lack of insight provision into the emergence of performance. This calls for an integral perspective on performance measurement, which leads to the necessary sub-question: What specific factors should be part of this tool?

Moreover, the final tool has to take the characteristics of a restaurants business into account,

and therefore, also consider the interactions and relations between the involved parties,

consequently: How are the relevant factors related to each other?

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And lastly, there is just a wide range of studies focussing on isolated relations between factors and performance instead of an integral measurement of restaurant performance, but there are no insights how strong specific factors influence performance in relation to each other. Thus, the contribution of each factor to the resulting performance needs also attention: What is the contributing weight of each factor?

The contribution to existing literature will be the identification of elemental performance

influencing factors of a restaurant and their integration into an overarching framework, which

forms the theoretical base for the actual tool. First, the Theoretical Introduction outlines how

the tool development is approached theoretically and provides a framework for the later factor

selection. Afterwards, the Methodology section outlines the research stages and describes how

the research is conducted. The Literature Review follows, which is applied to identify relevant

influencing factors. The Results section displays the outcomes of the tool application and

validation. The sections Discussion & Conclusion and Limitation & Future Research mark the

end of the paper.

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Theoretical Introduction

After having introduced the research field and questions, in this section the theoretical stage is set and how the tool development is approached. As previously said, just evaluating financial performance is not sufficient, which calls for an integral perspective on a firm, which takes different aspects of a firm into account. So far, there is no existing tool, which combines a top- down view on a firm with a monitoring or evaluation functionality. Thus, a tool is needed, which integrates these two features, so performance evaluation can enfold its true impact on business performance. However, since this tool wants to monitor performance, it faces the initial issues as mentioned in the introduction: Which aspects should a firm assess; how can these aspects be evaluated and what is an appropriate level of respective performance?

To take such a top-down perspective, a framework is needed, that provides generally valid insights, which parts of a firm are important for value creation and later financial performance, in order to evaluate those parts individually and provide insights how their respective performance can be improved. There are a few well-known frameworks, which capture the elemental parts of a firm and might promise a potential starting point. One is the value chain, introduced by Porter in 1985, which “…identifies technologically and economically distinct activities…”, that are necessary through the flow of production (Holsapple & Singh, 2001, p.78). The five primary activity categories can increase the efficiency of the firm through the support of secondary activities, as for example technological development or procurement.

Through mastering the challenges of each activity, the firm aims to realize high levels of value for minimum costs, in order to achieve a competitive advantage (Porter, 1985). However, this framework only focusses on separate activities and their efficiencies and fails to link them to each other, which is previously showed as quite important for the operations of a restaurant (Beers, 2018). Moreover, it does not provide any insights in how efficiencies can be achieved.

Another framework that looks into different parts of a business is the concept of a strategic

plan. It should help managers to consider, how the firm is currently positioned, identify short-

and long-term objectives and how those can be achieved (Olsen, 2011). Even though the

strategic plan also breaks down its objectives into action steps on a low level of execution, it is

a tool for strategic planning. The considerations, it wants to facilitate, are more towards future

development and profitability and lack a clear perspective on the business itself

(businessstudynotes.com, 2017).

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and business developers to formulate their business idea, in order to pitch it to potential investors. It is a widely accepted concept and applied by investors to assess a new business in terms of its future viability, so already includes a monitoring and analysis aspect (businessstudynotes.com, 2017).

The business plan is selected as the best suiting frame for this study, since it not only captures integral aspects of a firm, which are applicable to most businesses, but also provides a set of questions per aspect, to further facilitate considerations. A representative template of a business plan was taken from Barringer (2015). Additionally, to matching the widely applied sections of a business plan, his book “Preparing effective business plans: an entrepreneurial approach” also includes a step-by-step guide, which actual factors have to be considered per section. Therefore, it was selected as superior to other templates, which just roughly outline the content every section should contain. An illustration of the template is provided in Appendix 1.

Such a business plan usually covers various perspectives of a business, specifically an external perspective (e.g. industry and market analysis), an internal perspective (e.g. organisational structure and operations plan) and financial expectations (Barringer, 2015). However, this tool aims to monitor existing and already operating businesses. So, even though when founding a business or starting a restaurant, industry and market factors are relevant dynamics to consider, as soon as the restaurant starts to operate, these factors are hard when not even impossible to change, for example due to sunk costs. Since the tool wants to give insights into potential problem areas of a business to empower the manager to address them, this study takes an internal perspective on business performance and consequently only includes the internal sections of the business plan, which are specifically: Marketing Plan, Management Team &

Company Structure, Operations Plan and Financial Projections (Barringer, 2015).

In the Marketing Plan section, the business developer is asked to describe in detail, which product or service the business aims to sell, to which customer groups and via which channels, for example social media or public relations. This includes an overall marketing strategy and how customers are attempted to acquire. Also, how the business wants to position itself in relation to its competitors with its sold feature or good, is an essential part of this section. Other aspects are distinct points, which differentiate the product from the competition, the pricing strategy and how the sales process takes place (Barringer, 2015).

In the section regarding Management Team & Company Structure, a business plan describes,

which specific persons will be part of the managing team, how they are related to the company

in terms of ownership and how they get compensated financial-wise (Barringer, 2015).

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All the aspects relating to the actual operation of the future business are gathered in the section Operations Plan. Operating models and procedures, the business location with its facilities and equipment and operation strategies are fundamental parts of this section. If applicable, also the current status of product development can be included (Barringer, 2015).

And the last perspective, which is assessed by potential investors, is the financial aspect, namely the Financial Projections of a new business. More specifically, where needed funds come from and how they will be used. Also, the use of the expected revenue streams and assumptions regarding these revenue streams are part of this section (Barringer, 2015).

However, a business plan takes a descriptive and predictive perspective to force a business developer to clearly formulate and explain how the future business aims to achieve success in the market (Barringer, 2015). In contrast, this study takes a retro-perspective and assess past and current performance. Therefore, some of the described sections are re-phrased to better match this perspective: Management Team & Company Structure will be named Management

& Organisation to also cover additional managerial and organisational factors. Operations Plan turns into Operations, Marketing Plan into Marketing and lastly, Financial Projections are captured as Financial Performance.

After now having argued why the business plan concept is necessary and suitable and what

each section covers, the business plan will be applied to structure the research. It provides a

framework and guides the factor identification in the literature review and helps to structure the

conceptual framework. In the next section, the methodology outlines the research approach and

conduction. Afterwards, the actual literature review follows, based on the structure of the

business plan.

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Methodology

Since existing research is applied deductively, in order “to build and verify…explanation[s]”

(Saunders, Lewis & Thornhill, 2016, p.185), and to develop a performance evaluation tool, this study combines an explanatory and evaluative study design. However, existing literature does so far not provide an overall framework to evaluate restaurants performance integrally, which makes theory development an appropriate knowledge generating process (van Aken, Berends and van der Bij, 2012). The study follows a triple-phase multi-method qualitative research design, where the methods of (semi-)/structured interviews, structured, participant observations, interviewer-completed questionnaires and surveys are applied in three phases of data collection, which resemble the business analysis cycle: analyse the need, define a solution and test a solution (Johri, 2010).

The environment of the tool development is the restaurant industry in the Netherlands. This industry is a valid research setting to develop such a tool, due to two reasons. Firstly, restaurant businesses are largely present in every bigger city and contribute a significant share to the Dutch economy. The Dutch restaurant sector grew by a year-on-year change of 6,5% in the fourth quarter of 2017, compared to an EU average growth of the hotel and restaurant sector of 2,86%

from the first quarter of 2015 to the first quarter of 2016, emphasising its economic importance (CBS, 2016; CBS, 2018). And secondly, an extensive set of existing research, which already studied how the performance of restaurant can be framed and measured, promises a potential pool of influencing factors, necessary for the actual measurements of the tool (Creswell &

Creswell, 2017).

Based on the previous arguments, the units of analysis are full-service restaurants, which are

defined in this study as gastronomy establishments were a waiter serves a range of menu items

to guests at the table, who pay after consumption. To be able to participate in the study, a

restaurant has to fulfil a few criteria. These restrictions are necessary to ensure a sample

selection that suits the research objective. Restaurants, which are part of a restaurant chain, will

be mostly managed centrally. Therefore, such restaurants will just have limited possibilities to

adapt their business conduction in order to significantly improve their performance and are

consequently excluded. This will be ensured by including this aspect already in the initial

contact approach. And secondly, the restaurant should face a minimum degree of competition

at their location, so it actually has to compete for customers and improve performance to meet

customer expectations. It can be assumed that this would be to a much lower extent the case in

a monopolistic market.

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To approach an appropriate measure to assess this, a short example calculation is conducted.

Based on the average of the biggest restaurant rating websites, specifically TripAdvisor, yelp and thefork (Thefork, n.d.; TripAdvisor, n.d.; yelp, n.d.), in Amsterdam are roughly 3300 restaurants operating, including cafés, restaurants, bars and pubs. By taking the area of 219,3km

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of Amsterdam into account, the result is that the average distance between two restaurants in Amsterdam is approximately 300m. Since Amsterdam might have a high restaurant density, an acceptable level of competition is at least two other restaurants in a circumstance of 1km of each participating restaurant.

The specific criteria are therefore: Operates individually on the market outside of a chain, managed in-house, faces a minimum degree of competition at the location of operation.

Research Steps

In the following section, a detailed description of the specific research steps is provided, including argumentations for the suitability of the selected research methods. A combination of a deductive and an inductive method was used, which is typical for qualitative research, since it provides diverse insights on relevant factors and increases confidence on the validity of the factor selection (Creswell & Creswell, 2017).

Stage 1

The first research stage represented the initial factor selection, which are the measuring

elements of the final tool. Firstly, the deductive method of a narrative literature review was

applied to enfold existing research, how the relevant sections of the business plan can be framed

as factors in a restaurant context, and which of these factors were relevant for the evaluation of

a restaurant’s performance. A narrative literature review enabled to link the various studies on

different topics of restaurant performance for the purpose of interconnecting them into the

framework of the business plan (Baumeister & Leary, 1999). The extensive field of existing

research on the aspects of restaurant/gastronomy performance allowed to limit the used

literature for review to a restaurant context, to identify influencing factors, previously

specifically related to restaurant performance. The following databases were searched for

relevant literature: WorldCat, Elsevier ScienceDirect and EBSCOhost Complete. Due to the

circumstance that the business plan guides the research, its structure is also applied to identify

and analyse existing research. To start the search for relevant research, the section headings of

the business plan were used, additionally to combinations of the same or extended with the term

restaurant. This led to the following search terms: restaurant, performance, marketing,

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Initially, 56 papers were selected, based on their title and abstract. Every paper was examined for evaluations of influencing factors on performance. After the assessment, 30 papers were excluded, since they did either not include any description or actual measurements of an effect of a variable on restaurant performance, or they just provided a framework. That left 26 papers as relevant. Afterwards, all used variables of the included papers were listed and checked for their definition to enfold to which aspect they relate to, in order to compile them into a selection of influencing factors, which were then in return sorted along the sections of the business plan.

In total, 53 variables could be found, which were previously assessed on their relation on each other or a dependent variable, for instance Sales Performance (Assaf, Deery & Jago, 2011;

Reynolds & Thompson, 2007). Some variables were used in various papers (e.g. ‘Employee Satisfaction’ by Koys, 2003 and Reynolds & Biel, 2007), while some different variables contributed to the same aspect (e.g. ‘Employee Turnover’, ‘Intent to Quit’ and ‘Organizational Commitment’ together relate to Employee Retention). Eventually, this approach allowed to end with a specific selection of influencing factors per business plan section. The codebook, that describes which found variables contribute to which selected factor and how the selected factors are related to literature and the business plan sections, is provided in Appendix 2.

Afterwards, the conceptual framework was built to integrate and set the identified factors into relation to each other, since, as previously mentioned, evaluating the factors isolated from each other is insufficient.

Stage 2

After having identified a preliminary pool of relevant factors, based on literature, in the second stage, the conduction of semi-structured interviews represents the inductive approach. These interviews were conducted to validate the applicability of the sections of the business plan to restaurants and augment the literature-based preliminary influencing factor selection.

78 restaurants were contacted via email, phone or approached directly. 10 restaurants were eventually willing to participate, leading to a response rate of 12,8%. 10 mangers of restaurants, fitting the sample selection criteria, were interviewed with a questionnaire, containing open- and closed-ended questions, to explore potential missing factor and validate the preliminary factor selection. The interview guide is provided in Appendix 3.

Responses were directly recorded into an excel sheet, which is provided in Appendix 4. Also,

the questions after the contribution weight of each factor were part of this interview, to match

the tool with realistic requirements. Moreover, Reynolds & Thompson (2007) argued that the

involvement of experts in the tool building process increases the credibility of the results

towards other experts later.

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After the interview analysis, the literature-based factor selection was finalised. The operationalisation outlines then how the specific factors are measured, by selecting appropriate scales and survey items from literature for each factor. The result of this stage was a final selection of influencing factors, including measurements for each factor, ready for application, which represents the actual business performance scan tool.

Stage 3

In this stage, the second data collection took place. 10 restaurants were assessed with the previously developed tool, which combines different research methods, surveys and types of respondents. The collected data helped to assess the applicability and effectiveness of the tool and to which extent the internal performance score correlates with the financial benchmark.

A multiple case study approach was applied, which is a valid method for theory building, since it “investigates a contemporary phenomenon within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident” (Eisenhardt, 1989; Van Aken et al., 2012; Yin, 2003, p.13).

The overarching research method was an interviewer-completed questionnaire, so the

application of the tool is reproducible without any experience and it allowed to isolate the

effects of the factors on business performance (Phillips, Phillips and Aaron, 2013). The

questionnaire is composed of different research method elements. One part is based on a

structured participant observation, where specific factors are assessed through the researcher

by observing them on site (Saunders et al., 2016). These observations contained contextual and

behavioural data (Saunders et al., 2016). The generated primary, descriptive observations are

recorded with a questionnaire. The second research method, used in the tool, was a survey-

based structured interview to quickly record responses from customers, managers and staff

members. The whole tool, in form of the interviewer-completed questionnaire filled out by the

researcher, allows therefore to compare and to quantify the results from different restaurants or

researchers (Saunders et al., 2016).

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Stage 4

After the data collection was completed, the data were analysed to evaluate to which degree the applied tool measures performance and if the measured performance correlates with the restaurant’s financial success. To conduct such a comparison, a score, based on the measurement of the tool, was paralleled to the subjective financial performance of a restaurant.

This provided valid insights into the accuracy, validity and effectiveness of the developed tool.

The illustration of the score was approached with the Balanced Scorecard Method, since this instrument allows the combination of strategic goals and performance measurements (Kink, 2008).

Stage 5

In the final stage of the study, the scanned restaurants were provided with an illustration of their performance in comparison to the sample average. After having the illustrations provided to the responsible manager, the manager was given the chance to provide feedback in a third interview round on the usefulness of those illustrations in form of a short survey (Appendix 11). Three managers made use of this possibility. This feedback provided final insights into the validity, efficiency and effectiveness of the tool.

Below, a visualization of the research steps is provided.

Figure 1: Research Stages Stage 1

Narrative literature review for factor selection Development of conceptual framework Stage 2

First data collection phase with semi-structured validation interviews (n=10) Operationalisation of conceptual framework

Stage 3

Second data collection phase through tool application with interviewer-completed questionnaire

Stage 4

Qualitative data analysis

Correlation analysis of internal performance score and financial benchmark Stage 5

Provision of result illustrations to restaurants

Feedback survey on tool application and helpfulness of result illustrations

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Controllability, Reliability & Validity

In total, three different sources of data were used, namely relevant research literature, restaurants themselves (e.g. in form of restaurant managers, staff members and customers), and restaurant review platforms (e.g. TripAdvisor or Yelp). The use of different methods is called

‘triangulation’, which are in this study; literature review, (semi-)/structured interviews,

structured participant observations and online-research, and should ensure substantial reasoning

for answering the research questions (Eisenhardt, 1989). The inclusion of observations into the

tool, additionally to surveying, should verify, how respondent’s answers are consistent with the

reality. This should make the tool more robust against confirmation bias, reflecting the tendency

of respondents to assess their own performance too positively. However, there are few issues

related to participant and structured observations. Time Error, which bears the risk the time the

observation takes place is not representative for the business, is addressed through timing the

observations to peak hours of restaurants, where the workload is the highest, pressurising the

teams’ ability to achieve high performance even under stress (Saunders et al., 2016). At the

same time, application of two forms of observations addresses the risk of observer bias, since

the structured observation additionally provides a clear guideline what to observe (Saunders et

al., 2016). The notes taken during the interviews and the coding process based on literature, to

develop higher order constructs, are provided transparently in the appendix to ensure

replicability for future researchers.

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Literature Review

The literature review provides the theoretical basis, which factors are relevant for a restaurant’s performance, and is structured according to the introduced business plan.

Generally, the gastronomy business is a quite mature industry, which might give a potential reason for the existence of the extensive literature field. However, the field remains largely scattered, in terms that different aspects of restaurant operations are widely researched but not connected yet within an overarching framework. The focus mainly lays on the evaluation of specific relevant influences on performance, for example the effects of employee and customers satisfaction, or organisational structure on restaurant performance (Gupta et al., 2007; Tse, 1991). Additionally, it remains rather unclear why specific concepts drew more attention than others. Is it either due to the fact that they usually do not get much attention in day-to-day business or because they are utterly important especially for day-to-day business. And even though when studies took a broader perspective in assessing a restaurant’s performance, either the perspective was only focused on one aspect of a restaurant or a framework was not applied to reason for the selected factors used (Assaf et al., 2011; Edwards & Ingram, 1995; Reynolds

& Biel, 2007; Reynolds & Thompson, 2007). These circumstances leave existing research relevant but difficult to apply practically.

For each section of the business plan, relevant influencing factors are identified from literature.

This factor identification provides then the basis for the conceptual framework. At this point, it is noteworthy, that additional to the four previously introduced business plan sections (specifically: Management & Organisation, Marketing, Operations and Financial Performance) two more aspects emerged from literature: Employee and Customer. Both are initially not included, maybe because, in a business plan, they are perceived as given or irrelevant for a future-perspective. However, both aspects relate to factors, which were found by past research to be influential for restaurant performance. Therefore, it is necessary to extend the original business plan by these two sections, to ensure a coverage of all aspects, relevant for restaurant performance.

Management & Organisation

As introduced in the business plan, the characteristics and capabilities of the manager,

responsible for the decision-making in the restaurant, have a significant influence on the

performance of the restaurant. The manager’s experience in the industry, and the human capital

acquired through that experience, and his confidence to meet situational demands with his

abilities is found to have a significant influence on a restaurant’s performance (Hallak et al.,

2018; Lee et al., 2016a; Lee et al., 2016b). Another aspect that is found to be influential are the

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executed Innovation Activities, or to which extent innovations took place, for example regarding the product, the service or the processes in place. This is found to have a positive impact on performance as well (Hallak et al., 2018; Lee et al., 2016a; Lee et al., 2016b). These two factors cover important aspects, since they might influence and reflect how a restaurant operates in the market and deals with a demand for change and adoption to external changes (Hallak et al., 2018; Lee et al., 2016a; Lee et al., 2016b).

Additionally, the Organisational Structure of a restaurant, specifically the degrees of formalization, centralization and specialization, showed to imply significant differences in performance between different levels of these dimensions (Tse, 1991).

Marketing

The marketing-related factors that drew attention in literature can be mainly divided into two forms. First, factors indicating the public perception of a restaurant, or Reputation, and second, Marketing Activities aimed to address and influence this perception. Both forms influence indirectly and directly financial performance, since this reputation, as public perception of the restaurant, may be positively influenced by advertising, and then will result in an increased financial performance (Kim et al., 2015; Kim et al., 2016). Moreover, Jeong & Jang (2011) found evidence for an influence of such a reputation, which could be on display in form of online reviews, on the perceived Service Quality and dining Atmosphere.

Operations

For the operating mechanism of a restaurant, the factors found in literature can be divided into two operational aspects: the internal setting a restaurant operates in, as for example number of seats or usable square metres, and the ability of a restaurant to make the best use of it. The first aspect is framed as Given Setting, which sets fundamental constraints for a restaurant, for example through kitchen size, number of seats or square metres available, and directly influences performance (Assaf et al., 2011; Kim et al., 2016; Kimes, Chase, Choi, Lee &

Ngonzi, 1996; Reynolds & Thompson, 2007). The second aspect is framed as Efficiency. Since

restaurants face a high degree of uncertainty regarding timing of guest streams and workload,

Efficiency is found to be an important factor, (Kim et al., 2016; Kimes et al., 1996; Muller,

1999; Sanjeev, 2007). The construct, which relates to both aspects from a customer perspective

is the Atmosphere, which is also found to have an impact on Customer Satisfaction and

Performance. The Atmosphere reflects, how a restaurant creates an ambience in the operating

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And lastly, but not less important, the Food Quality, which represents the customer’s perception of the served dishes, showed influences on the customers intention to return, the customer’s satisfaction and motivation of the customer to share his experience (Jeong & Jang, 2011; Sulek

& Hensley, 2004). Together with Atmosphere and Service Quality, Food Quality is framed in literature as restaurant or customer experience. Research found evidence of an influence of Food Quality on Customer Satisfaction and the Comeback Intention (Gurski, 2014; Jeong &

Jang, 2011; Sulek & Hensley, 2004).

Employee

The original business plan does not include detailed descriptions regarding employees or staff members. However, research showed a high importance for aspects regarding the staff in the service delivery of a restaurant, since their staff’s well-being is found to have a significant impact on performance (Bufquin, DiPietro, Park & Partlow, 2017; Kanyan et al., 2016; Koys, 2003; Koys & DeCotiis, 2015). Especially, Employee Satisfaction drew attention in research and is found to directly influence Customer Satisfaction, since a more satisfied employee is more willing to put an increased effort in fulfilling its service encounter (Salehzadeh et al., 2017; Koys & DeCotiis, 2015; Koys, 2003; Sasser, Schlesinger & Heskett (1997).

Moreover, evidence shows that employee’s positive perception of their Work Environment

affects two factors parallelly: the intention of an employee to quit his job is weakened due to

the social comfort at work, while Financial Performance is further strengthened, since a

positively perceived work environment leads to positive beliefs about performance and to

greater performance itself (Kanyan et al., 2016; Koys & DeCotiis, 2015). Therefore, the degree

of employee fluctuation or Employee Retention is both, an indication of Employee Satisfaction

but also an influencing factor for Service Quality, and is found to have an influence on Financial

Performance, since more experienced employees are better able to perform their assigned task

(Bufquin et al., 2017; Hallak et al., 2018; Koys, 2003; Koys & DeCotiis, 2015). An important

indicator whether an employee’s performance is perceived positively by customers is captured

as Service Quality (Gurski, 2014). Since research also found a positive correlation between

Service Quality and Customer Satisfaction, it links the area Employee to Customer (Qin,

Prybutok & Zhao, 2010).

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Customer

This area (Customer) of influencing factors also fully emerged from existing literature, were customer value-related factors are an important indicator of a restaurant’s level of performance but are not covered by the business plan. However, the customer is an important actor in the service delivery of a restaurant and is eventually a decisive factor for the financial success of a restaurant, since when a customer does not enjoy his time at the restaurant, the restaurant is not able to build a loyal customer base (Heskett, Jones, Loveman, Sasser & Schlesinger, 2008).

Consequently, it is essential to integrate also customer-related measures into the scan.

Three concepts drew here increased attention in research and found themselves to be essential for a restaurant’s success: Customer Orientation, Customer Satisfaction and Comeback Intention (Jogaratnam, 2017; Salehzadeh et al., 2017; Qin et al., 2010; Gupta et al., 2007).

A business’ general orientation towards the customer, namely Customer Orientation, which

“places the customer’s wants and needs at the centre” (Salehzadeh et al., 2017, p.274) of its operations, is found to have both, an indirect positive influence on Financial Performance through organisational culture and a direct positive influence on Financial Performance (Jogaratnam, 2017; Salehzadeh et al., 2017). Customer Satisfaction affects the Financial Performance of a restaurant business, and also strengthens the intention to talk positively about the restaurant experience (Gupta et al., 2007; Qin et al., 2010). And lastly, Comeback Intention, as intention for visiting a restaurant again, is strengthened by Customer Satisfaction and eventually leads as well to an increased Financial Performance (Gupta et al., 2007).

Financial Performance

Financial Performance represents the factor, which connects a range of studies, since most research used Financial Performance as dependent variable, by applying various different measurements. Therefore, it functions as way to somewhat benchmark if specific constructs could be found to have a significant impact on business performance. Even though every manager is probably aware of the importance of performance for the persistence of his organisation, there could no consistent or widely-accepted definition of performance be found.

In most studies, Performance was framed and measured as financial performance, using financial indicators as for example revenue, revenue per seat or square metre (Assaf et al., 2011;

Bufquin et al., 2017; Gupta et al., 2007; Hallak et al., 2018; Jogaratnam, Tse & Olson, 1999;

Kim et al., 2015; Kim et al., 2016; Koys, 2003; Koys et al., 2015; Lee et al., 2016a; Lee et al.,

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The existing literature field reflects a wide range of relevant influencing factors for restaurant performance. Mostly relations between individual factors and financial performance were assessed to test for potential correlation. But such a perspective does not reflect reality, were all these factors occur and influence parallel. However, it provides a valid foundation for the factor selection, due to the wide range of the research field. The result of the literature review is a preliminary selection of influencing factors for each section, whose validity is assessed later on the basis of the first interview round. The results are provided below in Table 1.

Table 1: Influencing Factors per Section

Area Influence Factors

Management Manager Characteristics

Innovation Activities Organisational Structure

Marketing Marketing Activities

Reputation

Operations Given Setting

Efficiency Atmosphere Food Quality

Employee Work Environment

Employee Satisfaction Employee Retention Service Quality

Customer Customer Orientation

Customer Satisfaction Comeback Intention

Performance Financial Performance

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Conceptual Framework

After having outlined which factors drew attention and identified relevant ones for this study, a framework is needed to determine and illustrate how the factors are related to each other, relating to the second research sub-question.

To make assertions about levels of performance, two dominant ways of assessment approaches can be found in past research. One way of approaching performance measurement is to test for correlations, so if a change in one input or activity leads to a changed level of performance.

This way of testing however appears to be rather limited towards the assessment of the effect of one specific variable, since research utilising this approach included often only brief number of variables related to a specific aspect of restaurant performance (Bufquin et al., 2017; Gupta et al., 2007; Hallak et al., 2018; Jogaratnam, 2017; Jogaratnam et al., 1999; Kim et al., 2015;

Kim et al., 2016; Koys, 2003; Koys & DeCotiis, 2015; Lee et al., 2016a; Lee et al., 2016b; Qin

& Zhao, 2010). Another approach, which is utilised in this study, is comparing a level of performance of one business with the level of another one and assessing the differences in various inputs, for example the degree of formalisation, specialisation or centralisation (Tse, 1991). In the reviewed literature, various research models and frameworks can be found, which apply such a conceptual framework. Salehzadeh et al. (2017) used a categorisation of determinants of performance, Financial, Customer, Learning and Internal, similarly Pavanai

& Scucuglia (2012) applied People, Process, Financial and Market. Additional frameworks are for example, the model of an input-out relation, monitoring the overall business cycle or performance measurement categorised by the character of the used resources (e.g. tangible vs.

intangible resources) (Edwards & Ingram, 1995; Reynolds & Biel, 2007; Reynolds &

Thompson, 2007; Assaf et al., 2011). Even though these frameworks capture a restaurant’s business, based on either involved parties or performed tasks, they fail to comprehensively link the included factors to each other, in terms of their affection on each other and on financial performance.

In this study, a differentiation between two forms of performance is made: Internal

Performance and Financial Performance. Internal Performance is delivered over the course of

the service delivery and is positively defined as an organisation’s degree of its internal efforts

in accomplishing its business task. Financial Performance is the actual financial result of these

efforts and is used to benchmark internal performance. It is expected that financial performance

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delivery, captured by perceived values to the involved parties, to business performance. A business performance, in the framework namely Revenue Growth and Profitability, is therefore, just an outcome of a restaurant’s success in generating value in previous stages of the service delivery (Heskett et al., 2008). An illustration of the framework, updated by Heskett et al.

(2008), is provided below.

Figure 2: Service-Profit Chain (Heskett et al., 2008)

Thereby, the framework makes two essential contributions to the conceptual framework.

Firstly, the Service-Profit Chain connects the identified factors in a chain of causal relations, allowing the assumption that a factor is both, a reflection of performance of the previous stage and a determinant of performance in the next stages. Secondly, the fact that financial performance is framed as an outcome of performance in previous service delivery stages allows the actual separation of the (internal) performance of service delivery and the financial performance, which in return enables to operationalise the financial performance as a benchmark for the accuracy of the internal performance evaluation. Such an approach, to operationalise performance by a range of criteria instead of only financial measures, was already developed by Salehzadeh et al. (2017), who determined performance by financial, customer, internal process and learning/growth criteria.

The construction of the conceptual framework was mainly guided by the previously introduced

sections of the literature review. See Figure 3 below for an illustration of the conceptual

framework. Each section represents an independent aspect of internal performance. The

sections are sorted in their chronological order of the service delivery, to also assess later if

there are positive relations from earlier to later sections observable. Additionally, the Service-

Profit Chain raises the expectation that a higher level of internal performance is reflected in a

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higher financial performance. Each section is determined by its different influencing factors, whose relation to financial performance is already proven by past studies.

Figure 3: Conceptual Framework

As illustrated, internal performance was benchmarked against financial performance, in order to test the assumptions made above. The practical realisation of this approach, via two scores, is outlined in the operationalisation chapter. As now it is clear, which factors are relevant for the assessment of restaurant performance in the tool and how these factors are conceptualised, in the next step the first round of data collection is conducted, in order to assess the suitability of the business plan and validate and complement the literature-based factor selection.

vs.

Internal Performance Score

Operations

Financial Benchmark Financial Performance

Financial Performance Management &

Organisation Employee Customer

Given Setting Marketing

Efficiency

Atmosphere

Food Quality

Employee Satisfaction Employee Retention

Service Quality Work environment

Customer Satisfaction Comeback Intention Customer Orientation Manager

Characteristics Innovation

Activities Organisational

Structure

Marketing Activities

Reputation

Measurement Type Section Influence Factor

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Validation of Theoretical Foundation

After the business plan helped to identify relevant elements of a business to assess and past research provided a range of factors, which are relevant for each business element to evaluate, the first round of interviews with 10 restaurant managers gave insights into the validity of the application of the business plan into the restaurant context and the initial literature-based findings. This section follows the structure of the interview guide: first, the perspective of the respondents on restaurant performance is briefly outlined, afterwards the suitability of the business plan as a way to divide a restaurant into measurable elements is assessed. Then it is described where consensus and deviations to the initial factor selection were found, and lastly, it is described how the managers rated the importance of the sections and factors. A table with the individual comments is provided in Appendix 4

Generally, the responses reflect the impression that theory already gave on restaurant performance. Managers relate the term ‘restaurant performance’ strongly to the satisfaction and enjoyment their guests get out of their experience at the restaurant: “The satisfaction of our guests is at the core of everything what we do” (Restaurant Manager 6, 2018). However, measurement is mostly bound to financial numbers. When managers applied additional measurements for performance assessment, the application was rather isolated and only focused on specific aspects. For instance, one manager described: “From time to time, we look at the ratings on TripAdvisor, besides from that, we look into our financial numbers” (Restaurant Manager 10, 2018). Only one restaurant applied integrated and overarching measurements, which included customer and employee satisfaction, external ratings and financial numbers.

Moreover, when non-financial numbers are evaluated, the degree of formalisation of assessment is rather low and strongly related to the manager as a person. Generally, it can be said, that most restaurants have the same objective when aiming for ‘high performance’:

satisfied customers; but interpret the realisation and achievement very differently in practical terms.

The second part of the interview covered the validation of the sections of the business plan and

the two additional sections from literature. The respondents agreed on these section, only two

respondents were missing the ‘concept of the restaurant’ as an important element: “To me, a

good concept is the formula to success. It connects all elements of the restaurant” (Restaurant

Manager 1, 2018). However, later they agreed that it rather fits into the influencing factor Given

Setting. Therefore, the business plan, as a framework to identify relevant elements of a

restaurant, proves as a valid choice for this study.

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This procedure of probing for relevance and applicability was repeated for the preliminary literature-based factor selection, to evaluate the validity of the factor selection and add potentially missing factors. Here, strong connections and relations between the sections and the factors could be found since all respondents stressed the strong relation and influence of each factor on others. This reflects the insights from the literature review, where also a wide range of relations between factors and performance was found. Moreover, for respondents, it was partly difficult to make a differentiation between specific aspects. So, different terms appear to relate to the same circumstance or one term relates to various circumstances. For example, the restaurant manager himself seems to fulfil quite different roles in restaurants. Sometimes, he performs just the role of a shift leader, ensuring a smooth flow of operations, while in some restaurants he is central to strategic, financial and operational tasks. In contrast, for instance for the work environment, no consistent phrase could be found. This whole subject is related to

‘work culture’, ‘team spirit’, ‘employee satisfaction’ and ‘work environment’, showing again strong interdependencies between the different aspects. However, after outlining the identified influencing factors and probing for understanding, all additional aspects could be sorted into the existing selection. Therefore, no additional factors were added, and the literature-based factor selection can be assumed as validated. However, it will be partly necessary to augment the scope of some factors, so that they cover also the additional aspects the managers mentioned. This becomes especially relevant for the identification of appropriate scales to measure each influencing factor.

In the last part of the interview, restaurant managers were asked about the importance of the

sections and of each influencing factor in relation to each other. This question was answered by

asking the managers to distribute 100 points among the sections (Management & Organisation,

Marketing, Operations, etc.) and 100 points among each selection of influencing factors (for

the section Marketing e.g. Marketing Activities and Reputation) according to their perception

of importance. The results, including the standard deviation for each weighting, are illustrated

below (Figure 4). The raw data set, including the specific standard deviations for each

weighting, is provided in Appendix 5. The weightings indicate the importance of the sections

and factors in relation to each other and can be interpreted as percentage distribution. The

distributions of all respondents were averaged, the standard deviation indicates how much the

individual responses deviate around the average value.

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Figure 4: Section & Factor Weightings

The most important areas to assess are Operations, Employee and Customer. The argumentation of most managers was, that a very high level of performance in the operational part, combined with satisfied and motivated employees, will naturally lead to satisfied customers. The management and marketing section only fulfil somewhat of a ‘support function’ but are not decisive for the experience at the restaurant. However, the partly quite high standard deviation, ranging from 5,9 for Marketing up to 22 for Customer, indicates that restaurants are relatively heterogeneous in their focus. This might be due to the circumstance that managers constantly face trade-off decisions in applying their available resources. So, naturally they feel the constraint to place their focus on selected aspects instead of on all equally at a lower level of quality. Only in one very high premium restaurant, honoured with multiple Michelin stars, the manager answered that all sections and factors are equally important to them. The high standard deviation of Customer is a direct result of the fact that some managers indicated this section as an exclusive result of the previous sections (Restaurant Manager 6, 2018). Therefore, they can only influence it indirectly through their efforts in the previous sections and consequently rated the importance rather low in comparison to the average.

For the factors in each section, it appears that there are a few elements which are more important and function as a lighthouse, so a high performance at one factor is expected to have a positive effect on the other factors. For instance, a very experienced and passionate manager will also consider specific Innovation Activities to sustain success and choose an appropriate Organisational Structure. Also, the manager appears as a role model for his employees and team members, “since he influences the spirit of his staff “(Restaurant Manager 10, 2018). And additionally, “the manager makes it personal, and gives a personal treatment to the guests, so functions as the actual host” (Restaurant Manager 8, 2018). Consequently, the manager and his

Section & Factor Weightings

Operations Employee Customer

Management &

Organisation Marketing

26.3 28.3

45.3

Organisational Structure

Innovation Activities Manager Characteristics

53.5 46.5

Reputation Marketing Activities

30.5 26.0 25.5 18.0

Food Quality Atmosphere Efficiency Given Setting

24.8 15.0 35.8 24.3

Service Quality Employee Retention Employee satisfaction

Work environment

28.7 42.2 29.2

Comeback Intention Customer Satisfaction

Customer Orientation

13.9 15.4

23.1 25.1

22.6

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characteristics are the most important factor in the first section. In the Operations section, the Food Quality is expected to outweigh potential lower levels of performance at other factors in this section. For Employee Retention a more indicative effect is expected, implying that a positive Work Environment and a fair and passionate Management will lead to high levels of Employee Retention, which makes it less important to address directly.

And lastly, Customer Satisfaction is perceived as the most important factor, when it comes to guests, since it will positively influence the Comeback Intention but also the overall enjoyment of the experience like the Service and Food Quality. One manager stated quite pragmatically:

“When the food is not good, people won't come back” (Restaurant Manager 10, 2018), connecting Food Quality, Customer Satisfaction and Comeback Intention.

Additionally, the importance of specific factors seems to vary with the characteristics of a restaurant. In a restaurant, where tourists represent the biggest customer group, the intention of comeback is perceived as not that important, since tourist will naturally only have a limited possibility to visit the restaurant again. The same goes for a restaurant, which offers only a fixed menu with multiple courses that does not change over a longer period of time, so a dinner is more a one-time experience, since “the second time such a menu is probably not that exciting anymore” (Restaurant Manager 5, 2018).

Also Marketing Activities vary in their importance depending on the location and reputation of the restaurant. Also, the current state of the restaurant seems to have an influence on the importance distribution; when a business is still trying to build its reputation, marketing activities become more important than for an established restaurant.

As the section and factor selection is now finalised, and the specific importance of both is

assessed, the next step is to operationalise the findings into the final scan tool.

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