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SANTA MONICA, Calif.-Sometimes workers compensation claims experience has a lot more to do with human resources issues than risk management, one fast-food restaurant company has learned.
After analyzing its claims data, Kentucky Fried Chicken discovered that about 20% of its stores accounted for 73% of all its incurred workers comp costs in each of the past four years.
It then evaluated the factors behind that claims experience and found that:
High-risk stores were more complex, usually offering buffet or delivery service.
High-risk stores had less tenured store management and the greatest employee turnover.
While high-risk stores' sales volume was higher than low-risk stores, they were less profitable.
KFC decided to do the study after reductions in its workers compensation claims experience seemed to plateau, explained Chris Duncan, former human resources manager for KFC. Mr. Duncan now is director of risk management at Frito Lay Inc. in Plano, Texas.
Prior to conducting the study, "we focused on the immediate cause of the accidents-slips and falls, for example, cuts, burns, violent crimes against our employees," he said.
"We applied these tactics across all the stores, and it worked-it worked really well. We had great slip-and-fall reductions. We invested in fixing about 1,500 floors. We went after medical care costs very aggressively. We finally put in place a return-to-work program that I think is world-class. And we produced phenomenal results," Mr. Duncan boasted.
"We went from 1,400 stores and close to $19 million in work comp, to 2,000 stores and $11 million in work comp," he said.
"But the issue we were running up against was that we were running out of steam-steam from the standpoint that we didn't have any floors that we could go fix anymore," Mr. Duncan observed.
"So we started scratching our heads and asking, 'Gee, what can we do differently?' " he said.
What KFC decided to do was to start over with just one rule: "We're not going to use the old analogies, the old way of looking at it," he said. "Not that it was bad, but we had exhausted a lot of those opportunities."
Inspired after discovering that KFC maintained numerous electronic databases, Mr. Duncan hired The MedStat Group of Stamford, Conn., to analyze information about the company and build a cross-relational database to help it evaluate its exposures.
MedStat used 1995 data from various sources, including local-area networks, personal computers and mainframe computer systems.
"We probably looked at over 100 different parameters," estimated I. Jeff Turshen, a consulting manager at MedStat. "From these different areas, starting with detailed claim data we had been working with for a long time, we also pulled in the loss prevention, safety and security surveys, we got information about the different facilities, their size, the type of facility, different characteristics, the area around the facilities.
"We also looked at managers and crew, things like tenure, turnover, staffing, training levels, sales and profit. There were also some operational effectiveness scores and, finally, customer feedback was the last category."
"The trick was to pull it all together and link all the data together," Mr. Turshen explained.
After comparing the data, MedStat found that 400 stores out of about 2,000 accounted for 73% of KFC's incurred workers compensation costs.
"What was so interesting was it was the same 400 stores each year," pointed out Mr. Duncan.
Armed with the data, MedStat and KFC set out to determine what factors contributed to those stores' poorer loss experience.
"If we could find out what was different, we could get ahead of the game," Mr. Duncan explained.
In addition, the knowledge would enable KFC to direct more of its loss-control resources to stores most likely to need them, he added.
Analyzing the 400 stores showed that "work comp and your general business environment are tied together," according to Mr. Duncan.
"The things that came out were mostly HR issues-they were people issues," he said. "They were training issues, they were education issues, they were poor staffing decisions."
"That was eye-opening," he said. "It really drove home how intertwined effective human resource management and workers comp is," he added.
The information also made it possible for KFC to establish an early-warning system, Mr. Duncan said.
"Now I can say, 'A-ha, I just put an inexperienced store manager in a highly complex store that has a lot of volume; now that's a recipe for disaster,' " he said.
Christopher E. Mandel, senior director of world wide risk management at Tricon Global Restaurants Inc. in Louisville, Ky., moderated the session.
Tricon was formed by PepsiCo's spinoff in October of KFC, Pizza Hut and Taco Bell in October.