September 2015

There’s widespread agreement that stagnant wages are a big problem in the United States. Which industry could really help do something about it? Retail.

According to the U.S. Bureau of Labor Statistics, the two largest occupations in the United States are retail salesperson and cashier. In 2014, their median hourly wages were $10.30 and $9.20, respectively. Both are below the poverty threshold for a family of four, even for someone working full-time.

But if you are one of those workers, it’s hard to even know for sure whether you do work full-time. Retail employees typically receive their work schedules one or two weeks in advance and even those schedules can change at the last minute. As a result, workers do not know when they will work and how much they will make from one week to next. Such unpredictable schedules make it harder for them to hold on to a second job or take care of their families.

A common misconception is that this is okay because retail jobs are mainly for high school or college kids looking for supplemental income. Not so. In 2014, the median age of a retail salesperson was 35. The median age of a cashier was 27. These aren’t kids looking for extra cash; these are people who depend on their jobs to support themselves and their families.

Why then do I say that retail is an industry that can help improve stagnant wages? Because improving retail jobs — which, of course, includes increasing wages — not only would help the workers; it can also help retailers and their customers. That is, it doesn’t at all have to be a concession. It can and should be a win-win-win.

If retailers want to thrive by offering better jobs, they will need to change their operations strategy from one that uses people as interchangeable parts to one that is human-centered. This is the equivalent of changing from Henry Ford’s assembly line, which depended very little on empowered, motivated, well-trained employees, to the Toyota Production System, which only works when empowered, well-trained employees constantly identify and solve problems and improve performance.

As we all know by now, Toyota’s human-centered operations strategy allowed the company to produce higher-quality cars at lower costs. In my research, I found that the same approach, which I call the good jobs strategy, allows retailers to provide better customer service at lower prices. Other researchers have made similar findings in industries ranging from steel to health care.

Transforming any company — retail or otherwise — into a good jobs strategy company requires a lot of changes to operations and will likely take time and great managerial competence. The good jobs strategy involves investing in people and making a set of operational choices. It concerns how many products and services a company will offer, the balance of job standardization and empowerment, the allocation of work among employees, staffing levels, and how employees will engage in continuous improvement. It’s a system that needs to be implemented together. That’s hard to do, but hard doesn’t mean impossible.

For retailers, now is the time to act. The competitive environment is increasing the benefits of following a good jobs strategy:

Bricks-and-mortar retailers need to create a better in-store experience. With e-commerce expected to grow more quickly than brick-and-mortar retailing, bricks-and-mortar retailers will need to give their customers more compelling reasons to shop at their stores. Low prices won’t be enough anymore; Amazon or someone else on the internet can match and probably beat your price. Those compelling reasons to come to a real store include in-stock merchandise and friendly, knowledgeable employees who are empowered and have the time to help customers. Of course, you also have to keep your store clean and appealing. But what I found in my research is that a retailer with a human-centered operations strategy can do it all.

Omni-channel retail is increasing operational demands at the store level. When customers reserve products online to pick up a few hours later, they use that store’s inventory data. Those data had better be accurate or a lot of customers will be plenty annoyed. That kind of accuracy is hard to maintain, but it’s not impossible. What it requires is not better software so much as better store operations. On top of all that, some companies are now shipping products directly from stores to customers. So store employees now also have to take care of internet orders. Good, human-centered, in-store operations will make that a great service; not-so-good operations will make it a nightmare.

Cities are raising the minimum wage, and Congress may force companies to give workers better schedules. Some cities have raised their minimum wage to $15. Consequently, unless companies find a way to increase the contribution of their employees, they will have to raise their prices, degrade their service, or just accept lower profits. Meanwhile, the recently introduced Schedules That Work Act, if approved by Congress, will force companies to provide their employees with more stable schedules. Again, that’s something that companies with a good jobs strategy already do.

Investors are on the lookout for more sustainable companies. There is growing evidence that companies with business models based on offering good jobs do better than their competitors. Some investment firms, such as Parnassus, have funds that focus on companies with great workplaces. Apart from such specialists, the amount of U.S.-domicile assets under management for investors who care about companies’ long-term competitive returns and societal impact is estimated to be $6.57 trillion.

As you can see, the times are calling for retailers to adopt a good jobs strategy. Just as automobile manufacturing was a great setting for the Toyota Product System revolution, retail is a great setting for the good jobs revolution.

This post first appeared on Harvard Business Review Blog Network.

Executives have a choice in how they run their operations. They can run them in a way that uses people as interchangeable parts. Or they can run them in a way that leverages a skilled, capable, motivated workforce. Both ways can be profitable. But the employee-centered way is a better way — even in low-cost retail.

In my research, I’ve found that retailers using an employee-centered operations strategy, which I call the good jobs strategy, have two strategic advantages. First, they differentiate themselves by offering low prices and good service at the same time. Second, they are better at adapting to changes in customer demand, technology, and regulation. The good jobs strategy is a strategy in which everyone — customers, employees, and investors — wins.

Since my book on this topic came out in 2014, one of the questions I’ve been asked the most is: “How can investors or customers identify which companies in a particular industry are following a good jobs strategy?” To answer this question, my MIT students and I set out to create a good jobs score. We started with food retail and plan to expand it to other settings once we get feedback on our methodology. (So please tell us what you think!) Focusing on the 14 U.S. food retailers that publicly file with the U.S. Securities and Exchange Commission (SEC), we scored them in a range of 1 to 10.

Costco had the top score of 9.2, followed by Whole Foods and Publix, at 7.5 and 6.9, respectively. All the other food retailers we scored came in under 6, so there is a lot of room for improvement.

The score is a combination of three components: customer satisfaction, employee satisfaction, and productivity. Companies that follow a good jobs strategy design and manage their operations in a way that allows them to achieve high employee satisfaction, high customer satisfaction, and high productivity simultaneously. A company that does not follow a good jobs strategy will often sacrifice employee satisfaction or customer satisfaction for lower costs, which is commonly thought to be the only way to keep the “low” in low-cost retail. For this reason, we calculate the score as the geometric mean of these components rather than the arithmetic mean, so that a low score on any one of the components brings down the overall score more. In effect, we penalize the sort of trade-offs that the good jobs strategy renders obsolete.

For the good jobs score, we decided to focus on these three outcomes, as opposed to the particular operational practices that drive them. The reason: Collecting data on operational practices such as staffing, level of standardization and empowerment, and extent of cross-training was not feasible without having access to a large number of companies. In our early conversations with some companies, we found that they would not provide such data if we used those data to rank them publicly.

Even collecting data on employee satisfaction, customer satisfaction, and productivity was challenging. Although employee satisfaction and customer satisfaction are both important drivers of success, most companies do not disclose such data to their investors. We therefore had to rely on secondary data sources, which are not standardized and may have biases.

To create a customer-satisfaction score, we collected data from the American Customer Satisfaction Index (ACSI), Consumer Reports, and Yelp. Although each of these sources takes a different approach to measuring satisfaction, the results were pretty consistent. For the 14 companies we scored, the correlation between Yelp and Consumer Reports is 0.79, between Yelp and ACSI is 0.93, and between Consumer Reports and ACSI is 0.76. (As a reminder, a perfect correlation would be 1.0.)

To create an employee-satisfaction score, we collected data from Glassdoor.com and Indeed.com. Neither site can affirm that the people who provide data about companies actually work there. In addition, respondents to both sites are self-selecting; thus the data cannot be considered to have been gathered from a random sample of employees. But again, we found that these data sources were pretty consistent. For the 14 companies we scored, the correlation between Glassdoor and Indeed is 0.96.

To create a productivity score, we collected data from 10-K filings with the SEC. We looked at three measures of productivity: sales per square foot, sales per employee, and inventory turnover. Even those data are imperfect at best. Let me give you an example. Inventory turnover is calculated as cost of goods sold (COGS) divided by average inventory level. But even within the same SIC code, there is inconsistency in how companies report COGS. Some include depreciation of inventory; some don’t. Some include promotional expenses; some don’t. Some include compensation and benefits for some of their employees; some don’t. There are also differences in the merchandise mix of different companies. Of course, all the food retailers sell food, but some, like Walmart and Costco, also sell products such as electronics and furniture that are expected to have lower turnover than grocery items.

Clearly, investors concerned with how a company earns its profits — and whether it’s doing the best it could do for customers, employees, and the investors themselves — need better data to assess how well a company manages its operations. I hope that the good jobs score will encourage more companies to report these data.

On goodjobscore.com, we report a lot of other information about each of the 14 companies. Please take a look and let me know how we can improve the score and the website.

This post first appeared on Harvard Business Review Blog Network.

Archives for September 2015

The U.S. Needs a ‘Good Jobs’ Revolution in Retail

Scoring Retailers on The Good Jobs Strategy

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