Zeynep Ton

Author, Speaker & Adjunct Associate Professor at MIT Sloan School of Management

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Questions Investors Should Be Asking Low-Wage Employers

February 7, 2017 by Zeynep Ton Leave a Comment

Fifteen states have increased their minimum wage in 2016, with more on the way. In Seattle, for example, large employers will have to pay a $15 minimum wage by January 2017. These increases will seriously affect low-wage employers such as retailers and restaurants, which means investors should be asking some tough questions to see which low-wage employers in their portfolios will benefit from the wage hikes and which will lose:

How are you increasing your labor productivity?

If a company raises wages, it needs to increase labor productivity or either raise prices or lose profits. Simply cutting employee hours is not a viable solution. Companies that rely on understaffing to squeeze more profit out of fewer people will never get to the land of high productivity and great service that creates customer loyalty. The operational problems caused by understaffing will stymie attempts to lower costs and reduce service. So how can a low-wage retailer increase productivity? There are three possible approaches.

Automate. This can make sense in some environments, especially for routine information processing. But it’s a different story for retailers and fast-food companies — the largest low-wage employers. Robots are not yet good at social interactions or tasks that require dexterity, such as unpacking crates, shelving shampoo, making a burrito, or arranging flowers. That’s not to say that automation wouldn’t help in some ways. Wouldn’t it be cool if robots could round up the carts from the parking lot or if everything had an RFID tag and customers didn’t need every item to be scanned at the checkout?

So far, the technology we hear most about in retail is self-checkout. But self-checkout by itself does not automate the checkout process, it just outsources the task to customers. That doesn’t work so well when there are many items to scan or when things suddenly get complicated — say, when the customer realizes she got the wrong item or when she wants to use two coupons for the same product. Self-checkout can also increase customer theft.

Consequently, investors should ask: What technologies are you planning to use to increase labor productivity without undermining service or increasing costs elsewhere?

Simplify processes. There are many ways to simplify processes in low-wage service settings. Perhaps the most significant is to reduce product variety within a category and cut back on promotions. My local, low-cost supermarket has over 250 types of soup, over 50 types of milk, and over 50 types of shredded cheese. As research has shown, customers are less likely to buy anything when there is too much choice and they are less satisfied with what they do choose. Such variety also boosts costs and decreases labor productivity. With so many products in a limited space, shelving takes more time and not all units fit on the selling floor. So employees have to put the extras in the backrooms and bring them out when the units on the selling floor are sold — an error-prone process that often leads to stockouts. And of course, employees spend a lot of time moving products around and changing prices and locations of products due to promotions.

Given this reality, investors should ask: Do you want to pay people $15 per hour for all this non-value-added work? What are you doing to simplify so your people can work more efficiently?

Improve work design. Many low-wage employees could work more productively — if the company would let them. Standardizing routine processes and providing enough equipment, training, and time would help employees do their work properly. Cross-training allows employees to do useful work even when there are no customers. Empowering employees to make simple decisions for customers would reduce the time spent on small issues and deliver faster service.

With this in mind, investors should ask: How are you changing work design to improve productivity?

How are you using your workforce to cut costs and increase sales?

Another way for higher wages to pay off is if the employees themselves help reduce costs. One of the truths that makes the Toyota Production System so successful is that those closest to the work are in the best position to improve it. They have the most detailed knowledge and the strongest motivation. If a company can create an improvement system with mechanisms to hear employees’ ideas (the easy part) and to act on them (the hard part), costs will go down.

Employees can also increase sales. They know things about their local customers that no centralized system can know. They know what the customers are asking for that the store or restaurant doesn’t have.

Of course, all this requires enough time to do the daily work and engage in improvement. Many low-wage employers think that increasing labor productivity means doing as much as possible with as few people as possible all working as quickly as possible. But key aspects of great service can’t be speeded up. An IT system may find an answer quickly, but it can’t listen to the customer’s problem more quickly or with any empathy. Nor can thinking about improvement and experimenting with countermeasures be speeded up.

For these reasons, investors should ask: What are you doing to gather ideas from your people and to act on them? How are you leveraging employee knowledge to improve service and sales? How are you making sure your people have enough time to do their tasks well, give great service, and contribute to continuous improvement — all of which will pay back their wage increases?

What is your plan for transitioning to high performance?

If a company’s answers to any of the questions above is some variation of “we’ll find a way,” it has a problem and investors should worry. None of the changes I have mentioned are that easy. They require a shift from seeing employees primarily as a cost to be minimized to the generator of profits and returns. If a company’s leaders view employees this way, they will realize that it makes sense to invest more in them.

Higher investment, of course, doesn’t just mean higher wages and more training. It also means setting high expectations and doing everything you can to help people meet them. As I learned from my own research, that’s when you find convenience store clerks and grocery store cashiers who love providing great service and love their companies for helping them do it.

Right now, most companies are used to operating in the realm of mediocrity — from recruiting to training to job design to performance management. I have visited many retail chain stores since I started my research in the late 1990s. It is not unusual to find stockouts, messy (or worse) backrooms, new employees who still haven’t been trained, not-so-new employees who can’t answer basic questions, and managers who know about problems that are losing the company money but feel no urgency to solve them. Lack of care and respect for employees means that employees lose concern for their work.

Getting from there to excellence will take years. So these companies better get started. Investors can do them a favor by prodding them for serious answers. What exactly is the plan to move to excellence? What are some useful measures of whether progress is being made?

The minimum-wage hike will deeply affect low-wage employers. The companies that muster the most competence and motivation (that means leadership) in moving towards excellence will win. The others will either have to make less money or else increase their prices and lose out to their competitors.

Filed Under: Uncategorized

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

September 6, 2015 by Zeynep Ton 1 Comment

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.

Filed Under: Uncategorized Tagged With: Good Jobs, retail

Scoring Retailers on The Good Jobs Strategy

September 6, 2015 by Zeynep Ton 1 Comment

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.

Filed Under: Uncategorized Tagged With: Food Retail, Good Jobs Score, retail

Process tips for case method teaching

May 31, 2015 by Zeynep Ton 4 Comments

This blog post is about teaching—not about my research on the good jobs strategy. The inspiration came from my MIT Sloan students from spring 2015 who encouraged me to share my teaching tips and from a surprise visit from a former HBS student.

I’ll start with 2002, my first year teaching the required Technology and Operations Management (TOM) course at HBS.

It was one of the first classes of the semester when a student came in late. I knew I had to do something. My seasoned colleagues had told me that success in a case discussion depends on holding students to high standards: being on time, being prepared, and paying attention throughout the class. So I had to make it clear that coming in late was not acceptable. My colleagues had told me how they handle that: some restart the class, some make a joke, some ask the student if he or she is okay.

But I was too nervous to say anything. My heart was just beating too fast. All I could do was stop teaching, put a serious look on my face, and stare that student down as he made his way to his seat on the second row. Suddenly, the temperature in the room dropped several degrees.

Needless to say, my response did not go over well with the section. My students already had reasons not to like me and this action just reinforced their feelings. Things got a lot better by the end of the semester, but even so, one of the most common comments in my student evaluations was, “You were really mean to us in the beginning of the semester.”

All the same, my colleagues had been right. Setting high standards in the classroom is really important for a successful case discussion. But if it’s not done right, it can backfire—as it did for me that year. Setting high standards works well when it’s done with purpose and compassion—when students can see that you are doing it for them.

Below are some of the things that work for me. I hope some of these will help others as well.

Make expectations clear: On the first day of class, I spend time talking about case method learning and tell my students that we will all learn more when we all prepare well, respect each other, feel safe to say what we think in class, listen well, and focus on contributing to the discussion. Then I go through my expectations. Here are a couple things I mention:

  1. I will prepare well for the class and I expect them to prepare well.
  2. I will start and end on time. I expect them to arrive on time and stay throughout the class.
  3. I will give my full attention to them throughout the class. I expect them to do the same. No raising your hand when someone else is talking. No eating. No electronics—the phones, tablets, and computers must be put away.

Model the behavior: Early on in the semester, I do several things to model the right behavior.

  1. To encourage students to prepare well:
    • I prepare a lot! I come to class with a detailed teaching plan and do my best to know the content inside out. If the case has numerical analysis, I do the analysis multiple times before class to make sure I’m comfortable with the numbers.
    • For the first session, I often choose a case with some numerical analysis. The first day of an elective course can be tricky, since some students are shopping, so I go to the classroom early, walk around before the class to find which students have done the analysis, and call on them. I ask several follow up questions to help them complete their analysis and then encourage others to ask questions or contribute.
    • I tell students on the first day that I will cold call and I do, at least once per class. In the beginning of the semester, I often cold call several times per class. Before each class, I have two to three students in mind to cold call. I have a bias for choosing strong students for the opening cold calls—a strong start often helps the rest of the conversation. For easier questions, I sometimes choose students who haven’t spoken much to give them the opportunity to contribute.
    • When a student makes a point, I often ask follow-up questions. If they are not well prepared, they often can’t answer them and that encourages them to prepare more next time.
    • Carrots and sticks: A significant portion of a student’s grade is participation.
  2. To encourage students to come on time and stay throughout the class:
    • I start the class on time and end it on time. On the rare occasion that I go over by a minute or two, I give them back double those minutes the next day; if I end today’s class one minute late, I end tomorrow’s class two minutes early. My students know that I respect their time.
    • When students come in late or if they leave during class and come back, I acknowledge it. I don’t stare them down anymore! But I do say something to let them know that it’s not acceptable. I might just say “Welcome!” or “Oh, you made it!” or “Are you okay?” If tardiness or leaving the classroom continues, I may say something more and often follow up with an email (from me or one of my TAs).
      • Important note: Sometimes the problem is that the student was sick or had an emergency. I encourage students to let me know in advance about these conditions.
    • Carrots and sticks: The class participation grade depends not only on verbal participation, but also on nonverbal participation—that is, being there on time. My TAs and I track tardiness and penalize students for it.
  3. To encourage students to give full attention and listen:
    • I listen and make an effort to remember what they said during discussion. I often go back to a student for a comment he or she made earlier that day or even in a previous class. (I confess this is becoming more challenging over time!) One way to remember what students said in past classes is to quickly write down their comments right after class. If you have TAs, you can ask them to record what students say and then use those notes for your own class preparation.
    • The case method doesn’t work very well if students don’t listen. In the beginning of the semester, students may be so eager to make the point they have prepared that they do not pay attention to what’s being discussed. This tendency shows up in different ways: raising a hand when someone else is talking, repeating a comment that was made earlier, not answering the question the instructor or another student asked, making a comment that’s not in line with the discussion.   If I see any of these manifestations, I immediately speak up. For example, if I see students raising their hands while others are talking, I either make a gesture or say, “Please don’t raise your hand when someone is talking.” If someone says things that are not relevant or repeats a comment that has already been made, I may ask, “How is that related to what we have been discussing?” or “Are you answering the question?” or “How is what you said different than what so-and-so said earlier?” There are times when there was a connection or a distinction that I didn’t catch and these questions help make those clear.
    • If I see students who use their electronic devices during class or even have them on their desks, I ask them—by word or by gesture—to put it away.

Be fair: Here are a few things that help with fair calling:

  1. Seating chart: Have students sit in the same seats and make sure to memorize their names. The more you know them, the more likely you are to remember what they said and how frequently they talk.
  2. Identify students who speak a lot and those who don’t speak enough. Before each class, my TAs give me the seating chart with students highlighted in different colors: red for those who have spoken during al three last classes and green for those who have not spoken at all during the last three classes.
  3. I encourage students to let me know if I have consistently not called on them despite their hand being up.

Be thoughtful about assignment questions:

  1. The better the students know how to prepare for the class discussion, the better the discussion. So I put a lot of thought into the assignment questions. Those are often the exact same questions I will use to facilitate the discussion.
  2. I’m a big believer in pre-class written assignments. For about a third of the cases I teach, I ask students to turn in their answers to about three questions, which can be quantitative or qualitative. These assignments are due several hours before class. Pre-class written assignments help EVERYONE.
    • They help me understand where students are on an issue. This is especially helpful when I teach a case for the first time.
    • I can do more strategic calling when I already know their responses to questions.
    • Students’ preparation for a class (or effort) is hidden from us. Pre-class questions allow me to acknowledge students for good preparation. Some students are just too shy to speak in class despite a lot of preparation. The pre-class questions also help me identify students who are not well prepared but who are just too comfortable talking.
    • When students know that I will read their answers and use them in class discussion, they prepare better.
    • For quantitative questions, my TAs and I often provide the class with the mean and standard deviation of their answers. That shows them how much agreement (or sometimes competence!) there was in the analysis and where they stand relative to others.

Get feedback and provide feedback:

  1. About a third of the way into the semester, I ask students to provide feedback on our class discussion:
    • What is working well that I should keep doing?
    • What is working well that the students should keep doing?
    • What should I stop doing or start doing to improve the class discussion?
    • What should the students stop doing or start doing to improve the class discussion?
    • What should the TAs stop doing or start doing to improve the class discussion?

I read the feedback and then, with my TAs, identify the common responses. We then share those with the whole class. It’s very important to separate noise from signal in feedback. It’s also important not to be defensive. If you are asking for feedback, make sure you are interested in it and use it as a way to improve! Finally, it’s important to know what you will and will not change based on feedback. For example, even if multiple students complain about cold calling (this doesn’t really happen; if anything, students like the high standards), I know that it will stay for as long as I teach the case method.

  1. About half way into the semester, my TAs give the students feedback on their participation. (This idea actually came from the feedback we received from students!) We highlight:
  • Attendance and tardiness: number of unexcused absences and number of times they were late
  • Participation frequency: the student’s total number of comments and the class average
  • Participation quality: the student’s average participation score and the class average

These are some of the process-related things that have worked for me.  Obviously, no process can save a bad case or make up for a teacher’s lack of knowledge or lack of passion for the material. But even a good case or a knowledgeable and passionate teacher will be undermined by a poor process.

And finally, last week I had a surprise visit from my student who turned up late for during my first year teaching in 2002. He is now a banker in Africa and doing very well. We laughed over what happened and I’m happy that he doesn’t remember me as the “mean professor.” Here’s a photo of us from his visitLabi and me

Filed Under: Uncategorized Tagged With: case method, high performance, teaching

Why CEOs Should Follow the Market Basket Protests

July 25, 2014 by Zeynep Ton Leave a Comment

Somebody must have done something really right at Market Basket.

Thousands of the supermarket chain’s employees have organized rallies at their local stores and at the company’s headquarters during the last week. Were these employees rallying for higher wages, better benefits, and predictable schedules — the needs so many retail employees face? No, they were demonstrating to help their ousted CEO, Arthur T. Demoulas, get his job back (he was fired in June after coup led by his cousin, Arthur S. Demoulas).

At a time when we see so much division between CEOs who represent the 1% and their workers who representing the 99%, this is amazing.  Other CEOs should take heed.  Such support is priceless.

Market Basket is a profitable family-owned regional chain of 71 supermarkets in Massachusetts, New Hampshire, and Maine, with around 25,000 employees. According to Forbes, it’s the 127th-largest private company in the United States, with $4.6 billion in revenue. It has a loyal customer base who value the chain’s low prices and good service — as evidenced by the thousands of customers who have signed petitions backing the employees. The combination of low prices and good service is delivered by a loyal, committed, and capable workforce. If you visit a Market Basket store, take a look at the employee name badges — which include length of employment — and you will likely be impressed by how long people have been working there.

Market Basket employees don’t seem to stick around just for the wages and good benefits, however. The rallies for Demoulas suggest that they truly believe in his leadership and the direction he set for the company.

Yet, as I visited Market Basket stores and talked to employees during the last two days, I saw that they are not just fighting for their ousted CEO and his leadership and guidance. They are fighting for their values, their culture. They are fighting to remain an organization that takes care of its customers and its employees, a place where they can be proud to work.

Several employees told me they worry that Market Basket will become like any other supermarket. They worry that to make a quick buck, the company will increase its prices or reduce its service or reduce employee benefits or profit-sharing — maybe all of these.

These employees recognize that a “good jobs strategy” that allows companies to deliver great returns to investors by taking care of employees and offering low prices and great service to customers is a rare strategy to see in their industry. They recognize that it is a strategy worth a fight. They are right.

 

This post first appeared on Harvard Business Review Blog Network.

Filed Under: Uncategorized

Why Raising Retail Pay Is Good for Gap

March 11, 2014 by Zeynep Ton Leave a Comment

This post first appeared on Harvard Business Review Blog Network

Gap announced last week that it would increase its hourly minimum wage to $9 this year and $10 next year. Naturally, President Obama applauded the decision, which was in line with his own push to raise the minimum wage. But what Gap is after is not greater fairness or less income inequality. According to the chain’s CEO, Glenn Murphy, the reason for this move is that Gap implemented a “reserve-in-store” program 18 months ago, meaning that customers can order a product online and then pick it up at a particular store. Gap realizes that this program won’t work without skilled, motivated, and loyal employees.

This is hardly a surprise to me. Remember Borders bookstores? Almost 15 years ago, I studied Borders as it was trying to integrate its online store with its physical stores. Borders had great technology to tell online customers which book was available at which store. But there was a fatal hitch: the inventory data was not reliable. The system would tell a customer a book was in the store, but no one could find it. This happened 18% of the time! That’s way too many customers to let down and, in fact, Borders had to give up on the idea. Eventually, it went out of business.

Why were so many products not where they belonged? I found that stores that had fewer employees, less training, and more turnover had more of this problem. By going cheap on labor expenses, Borders made it hard to act on a strategic opportunity.

Borders is hardly alone in its lack of investment in employees and in the resulting operational problems. Most retailers follow what I call a bad jobs strategy. They see their employees as a cost to be minimized and invest very little in them. They pay poverty-level wages and offer unpredictable schedules that make it hard to hold a second job. They also design jobs in a way that makes it hard to do a good job; for example, to keep inventory data really accurate.

They don’t realize how much they lose this way. Retail stores are complex operating environments. A Gap store can have thousands of products, most of them in many sizes, and there are different places where they might be found—not only the shelves where they officially belong, but fitting rooms, storage areas, and special promotional displays, not to mention random places where customers might have left them. Customers come in with different wishes and need different amounts of help. When companies try to keep such a complex environment running with employees who are unmotivated, poorly trained, or overworked because they are too few in number, the result is poor execution. Products are in the wrong place or have the wrong price. Data are inaccurate. Promotions are advertised but not carried out. Employees can’t answer customers’ questions—they may not know the answers or they may not have time.

Pervasive problems like these reduce sales, reduce employee productivity, and increase costs. And, as Borders and others have found out, they can make it impossible for a company to seize a strategic business opportunity.

Gap’s decision to pay its employees more is a step in the right direction, but only a step. It allows the chain to improve store execution and deliver great performance, but it won’t make those happen all by itself. If Gap really wants to deliver excellence, it will need to complement its increased investment in employees with smart operational choices that ensure that employees are as productive as they can be and that they can play a bigger role in driving sales and reducing costs.

I know this is possible because, as I did the research for my book The Good Jobs Strategy, I found a set of companies already doing it. Whatever it does for the income gap in general, offering good jobs to employees – while delivering low prices and great service to their customers and excellent returns to their investors – could turn out great for Gap.

Filed Under: Uncategorized

A Minimum-Wage Hike Could Help Employers, Too

February 2, 2014 by Zeynep Ton 2 Comments

This post originally appeared on Harvard Business Review blog network.

President Obama’s State of the Union address tonight is expected to include a push to increase the minimum wage. A lot of companies that rely on low-wage workers are worried about that. It’s obvious to them that paying employees more will result in some combination of three outcomes: (a) profits will suffer as the wage increases eat into margins, (b) prices will have to be raised to maintain profitability, and (c) operational quality will suffer as a result of cutting headcount.

But there is more to the equation than wages, prices, and quality. There’s what those wage-earners can do to earn their wages—their productivity, motivation, customer service, and contributions to continuous improvement. The smart way to deal with an increase in the minimum wage is to design work in a way that improves employees’ productivity and increases their contribution to profits. All this is possible even in low-wage settings. In fact, some companies are already doing it.

Early in my career, I did research in retail operations that showed that bad jobs with poverty-level wages, unpredictable schedules, and few opportunities for advancement were not just rotten for the employees but were hurting the companies and their customers. Retail stores were full of problems that good, motivated employees could fix, such as misplaced products that no one could find and obsolete products lingering on the shelves, which led to lost sales and profits and frustrated a lot of customers.

Later on, I began to study some retailers that thrived by managing to offer good jobs and low prices. And I mean thrived—these companies were growing and coming out on top in very competitive industries, while spending much more than their competitors did on paying and training their employees. I examined four companies in particular: Mercadona, Spain’s largest supermarket chain; QuikTrip, a large convenience store chain with gas stations; and the well-known retailers Trader Joe’s and Costco.

These four companies don’t seem to have much in common. Different products, different customers, different ownership structures, different locations, different store sizes, and different employee incentives. Whatever they are doing right, it doesn’t depend on any of those factors. But here’s what is common among them. They all follow what I call the good jobs strategy, which is a combination of smart operational choices and investment in people.

When I examined these companies, I saw that they made four choices in how they designed their work. They: (1) offer less, (2) combine standardization with empowerment, (3) cross-train, and (4) operate with slack. These choices transform their heavy investment in employees into great performance by reducing costs, improving employee productivity, and leveraging a fully capable and committed workforce. I won’t go through all four choices here—that’s enough for a book. (Hint, hint.) Let’s just go through “operate with slack” to get a feel for what the choices are like and how they support the good jobs strategy.

Workload in a service setting is always uncertain. You never know how many customers will show up when and what they will want. So it’s easy to have either too many or too few people on the job. In my earlier research, I saw retailers consistently erring on the side of too few. This was no accident; they were more worried about keeping labor cost low than about the consequences of having too few employees. Companies that follow the good jobs strategy, on the other hand, consistently err on the side of too many—they operate with slack. That obviously improves customer service and sales, but it also helps companies reduce costs—yes, reduce—by keeping mistakes to a minimum and by giving employees time to contribute to continuous improvement.

But here’s the key. Operating with slack works great for these companies because it amplifies the benefits of their other three operational choices and their heavy investment in people. For example, because these retailers offer less to their customers and standardize many processes, they have a better sense of what the workload will be at their stores. So while they deliberately err on the high side, they don’t tend to be way off. And since they cross-train, their employees can always be doing something useful (not just make-work) even when there are no customers.

Sometimes people think I’m claiming that if a company pays higher wages, it will make more money. That’s not my message at all. The good jobs strategy is much more complicated than that. Yes, it includes paying employees more, but it also includes those operational choices, which are very down-to-earth yet quite unusual in many industries.

The good jobs strategy is not easy. You have to get many things right all at the same time. You have to embark on this path with a long-term perspective—you can’t just plug the components in and start raking in profits. But it is a strategy for producing excellence. That has been proven by the companies I studied, among others. It’s a sustainable strategy where everyone—customers, employees, investors—wins.

This is why US employers shouldn’t fear the prospect of a minimum wage hike, and in fact should view it as something of a gift. If firms are forced by law to pay their employees higher wages, they will rethink their operations in ways that make sense for all kinds of reasons. A good jobs strategy will let them reward their employees without hurting their customers or their bottom line.

Filed Under: Uncategorized Tagged With: minimum wage, retail, the good jobs strategy

Paying More Is Not Enough

September 24, 2013 by Zeynep Ton 1 Comment

The message of the fast-food strikes, the living-wage bill, and the attempts to raise the minimum wage is that big business should give low-wage workers more pay and either increase prices or make less money. I agree that low-wage workers should get more pay, but I don’t think their companies or their customers have to lose.

As I argue in my upcoming book, The Good Jobs Strategy, handled the right way, paying higher wages can be part of a strategy that brings in higher profits and return on investment and also lower prices and better service for customers. Yes, all at the same time. So the higher wages are not a giveaway, a concession, or in any way a net loss. How is that possible? Ask low-cost service companies like Costco that have been doing it for decades.

These companies think about employees not as costs to minimize but as capable human beings with the potential to generate sales and profits.  Therefore, they invest in them.  Not only do they pay higher wages than their competitors do, they also provide more training, more stable schedules, and adequate resources for getting work done. They also set high expectations and enforce them.

Doesn’t all this cost a lot? Of course it does. But that’s only part of the strategy.  These companies also design and manage work in a way that makes their employees more productive and takes full advantage of a committed, motivated, and capable (that is, well-paid, well-trained, and well-treated) workforce.  And if you think this all sounds like magic, let’s walk through the nuts and bolts of how they make this work.

These companies manage their operations in very specific ways that are quite unusual in their industries. Specifically they make four operational choices:

  1. They reduce costs and simplify work by offering fewer products and services.
  2. They combine standardization with empowerment, each in its most useful place.
  3. They cross-train employees so that they are always busy and so that they are all well equipped to assist customers.
  4. They deliberately overstaff so that employees have enough time to do their jobs well and to contribute to continual improvement.

As I said, this isn’t a matter of lofty mission statements and employee-of-the-week awards. It’s down-and-dirty hardcore operations management, guided by these four choices. Why these four? Because they work. Together, they turn high investment in employees into even higher returns in the form of productivity, profits, growth, customer satisfaction, adaptability to crises, and ability to seize opportunities.

Here’s one example. During the global economic crisis, two companies that offer their customers the lowest prices, Walmart and Mercadona, Spain’s largest supermarket chain, tried to lower costs by reducing product variety.  Walmart’s effort failed—customers were unhappy and sales dropped.  Walmart pulled back on the strategy and its chief merchandising officer ended up leaving the company.  Mercadona’s effort, on the other hand, succeeded—customers were happy and sales increased.  The company was able to reduce its prices by 10% during the economic crisis—a big deal for the customers.

Why was Mercadona’s effort successful?

Mercadona’s employees, employees who are knowledgeable about products because Mercadona already offers less and employees who are empowered to be part of, and have the time for, continuous improvement, helped management identify products most important to their customers.  After the company reduced product variety, Mercadona employees knew which products were no longer on the shelves, which products were acceptable substitutes and they communicated all this to their customers.  Again, they could do this because they are empowered, cross-trained and have the time to engage the customer.  When Mercadona made mistakes in pulling back certain products, employees immediately recognized the mistake and communicated it to management.

Mercadona’s employees responded in this way because Mercadona has followed the strategy I described above, which I call the good jobs strategy, for almost twenty years.  Apart from making the four operational choices, Mercadona invests in its employees. Employees are well paid and well trained. Every new employee gets a four-week training, which costs the company about €5000.  About 85% of employees are full-time. They have excellent benefits. They get their schedules one month in advance and work regular shifts. But the employees are so productive, so innovative, so loyal and motivated, that they more than pay back Mercadona’s investment in them.

At the end, Mercadona emerged from the economic crisis as a stronger player and captured a lot of market share from competitors.  And all along, it had the lowest prices in Spain and was very profitable. That’s the power of the good jobs strategy.

Of course, the good jobs strategy—high investment in employees combined with four operational choices—is no easy or quick answer to the massive social problem of having nearly one in four working adults between 25 and 64 who don’t even make a living wage. But it is a workable and sustainable strategy in which everyone—employees, customers and investors—wins.  We need more companies to follow it.

Filed Under: Uncategorized

Let’s hear it for nurses, store clerks, and other great people—and let THEM hear it, too

August 18, 2013 by Zeynep Ton Leave a Comment

Last year, when we had our third baby, the nurses at the maternity ward were fantastic. They checked on my new daughter and me routinely and always with a smile.  When they saw how exhausted I was after a 20-hour delivery, they reminded me that they could take care of my daughter while I slept at night and that I needn’t feel guilty about it, especially with two more kids waiting for me at home.  The night I finally took their advice was the best night of sleep I had had for several months.  I knew my daughter was in good hands.

Some of those nurses never knew how grateful I was to them.  We ended up leaving the hospital in such a hurry that I didn’t have a chance to thank them in person.  Back home, with three kids to take care of, I just plain forgot to send them a thank you card.  When I thought of it again a few weeks later, I remembered how wonderful they had been but I had already forgotten their names.

I felt ashamed and I still feel ashamed, but that made me realize something I should have realized long before. I write and talk and teach about what companies can do to make jobs better for their employees, yet I never thought seriously about how we, the customers, can make those jobs better.  But we can.

Certainly we can make life worse for employees.  Some of the retail employees I interviewed for my research—especially those who worked for companies that offered low-paying jobs with lousy benefits, too few hours, and unpredictable schedules, and whose jobs were designed in a way that didn’t allow them to do a good job—told me repeatedly what a pain customers could be.  Some customers made extra work for the employees by messing up the stores, some complained too much, and some were plain rude and insulting.  Inadvertently, we can also make life worse for employees by asking them to do things they either don’t know how to do (because they didn’t get the training) or don’t have the authority to do.  Instead of being upset with the employee, who generally can’t do anything about it, we ought to let the company know we’re mad at them for designing people’s jobs so poorly that they can’t give us good service even when they want to.

But back to the subject of making people feel better.  We’re always free to thank an employee when he or she deserves it—right on the spot and, for experiences like the one I had at the hospital, also with a letter to the employee and his or her manager.  That asks a little bit of effort of us—first we have to make sure to get the employee’s name, then write the letter. But it’s a small effort and, I can tell you, it really feels good to do it.

It accomplishes some good, too. When we as customers express our gratitude to employees, it shows the employees that what they do matters.  And that, according to the late social psychologist Richard Hackman, makes one’s job meaningful.

By expressing gratitude, we also provide employees with valuable feedback on their performance, which they may not get much of from their managers.  Hackman argues that knowing that one is doing one’s work well and that it matters to other people increases both motivation and satisfaction. When people are satisfied with their jobs, they are also more effective.  Effective employees produce better products or deliver better services, more productively and with fewer errors.

Recently, experiments by Adam Grant and Francesca Gino show that receiving expressions of gratitude makes people feel more socially valued and increases the likelihood that helpers would provide assistance again—and not just to the person who thanked them but to others as well.

And so our gratitude can circle around and end up benefiting us, too.

About a month ago, my husband and I had our fourth baby.  I had the same great experience at the hospital.  But this time, I wrote my thank you letter to the nurses to let them know how much their kindness, competence, and compassion mattered to me and my family.  It felt as good to thank them as it had felt to be treated so well in the first place.

Filed Under: Uncategorized

Crummy Retail Jobs Are a Corporate Choice, Not a Law of Nature

October 30, 2012 by Zeynep Ton 1 Comment

Right on the front page of Sunday’s New York Times there was a story about part-time work in retail.  Steven Greenhouse, a Times reporter, and author of The Big Squeeze, highlighted the tough working conditions for part-time employees, especially their struggles with too few hours and ever-changing schedules.

As someone who has been studying retail for a while, I was not surprised by what I read.  But looking through the readers’ comments, I saw that many were surprised and upset.  Some likened the work conditions Greenhouse described to slavery and some blamed capitalism and greed for producing these bad jobs.  But other readers pointed out that bad jobs are the price society pays for low prices.  If companies were to pay more money to their employees or provide better working conditions, then the prices we all pay would have to go up. 

For example, a reader from Manassas, VA wrote: ”If ‘we the people’ demand that companies such as Jamba Juice and Fresh and Easy (and Walmart) hire more full-time and near-full-time employees, we should not be surprised when the prices charged to us go up to cover additional employee costs. We have demanded lower and lower prices for years now. As a result, the working conditions at companies have been squeezed, the benefits packages have been nearly slimmed out of existence, and the hours allotted to each worker have been cut.”

The problem with this very common view is that it assumes that an employee working at a low-cost retailer can’t be any more productive than he or she currently is.  It’s mindless work so it doesn’t matter who does it.  If that were true, then it really wouldn’t make any sense to pay retail workers any more than the least you can get away with.

One reader from Austin, TX was angry enough to call for a boycott, but even he bought into the bad-jobs-for-low-prices assumption: “We have a civic responsibility to boycott establishments that abuse their workers in the name of efficiency, even though this will mean higher prices.”

But this assumption is plain wrong.  Even low-cost retail work is not trivial and how you perform that work makes a big difference for the company’s bottom line.  This is not just my opinion; there are successful low-cost retailers that prove it.  These retailers invest in their employees and complement that investment with a particular set of operational decisions that I have identified.  That way, their employees are more productive. Far from being a mere cost—a drag on profits—these well-paid employees, with all their expensive benefits and training, are seen as an asset—a generator of profits.  These companies demonstrate that there is no need to choose between low prices and good jobs. It is possible (though nobody said it’s easy) to provide the lowest prices to customers and much better jobs for employees and great returns for shareholders, all at the same time. 

Let me give an example that is related to part-time work.  As Greenhouse’s article mentions, some retailers operate with 85% part-time workers. Their excuse is that they need that much “flexibility.” Sure, some flexibility is needed in retail.  The nature of most service industries is that customer traffic varies greatly.  Sometimes the store is crowded, sometimes not. But flexibility for 85% of the employees?  That’s just ridiculous!  

How do I know it’s ridiculous? Mercadona, Spain’s largest supermarket chain, offers the lowest prices in the country and it does so with over 85% of its employees full-time and even salaried, with very predictable schedules that are provided one month in advance.  Yes, these are the same employees—cashiers, people bringing bananas out from the stockroom—that other companies need to be so “flexible” with.

Don’t Mercadona customers visit the stores at different times?  Don’t the stores need flexibility?  You bet they do.  Go into a Mercadona store in the afternoon and it’s almost empty.  It’s the siesta time, I guess.  Go back in the evening and it’s full of people.  But pretty much the same number of workers are there throughout the day.

How does Mercadona get away with this? It invested in its employees.  Mercadona spends about €5,000 per new employee in a four-week training program which includes cross-training. So when traffic is high, employees help customers and when traffic is low, those same employees shelve goods and order merchandise.  There’s always something productive to do and pretty much any employee has been trained to do it well. That’s Mercadona’s idea of flexibility.

And by the way, Mercadona doesn’t do this for charity.  It’s highly profitable.  At a time when Spain is struggling (to put it mildly), Mercadona is thriving!

So it’s not the need to offer low prices that produces the kind of job Steven Greenhouse describes in his article.  It’s the choice made by companies to offer bad jobs.  We should all be outraged to see so many companies making the choiceto rely on bad jobs.  It’s the biggest waste in so many ways. It’s a waste of human talent and human dignity.  It’s a waste of corporate profits and shareholder value. And it’s totally unnecessary. We all need to do our part to stop all this suffering.  How?  See my previous post.

Filed Under: Uncategorized Tagged With: low wage/supply chain labor, part-time work, retail

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