Paying More Is Not Enough

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.

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

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.   

CRUMMY RETAIL JOBS ARE A CORPORATE CHOICE, NOT A LAW OF NATURE

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 choice to 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.

Telling the Dalai Lama about Bad Jobs in Retail

Last week, I had the privilege of presenting my research to His Holiness the Dalai Lama.  My presentation was part of a panel in which scholars talked about the world’s big problems. Each of us spoke about what research in our field said about one of those problems, including what we could do to improve the situation.  Naturally, I talked about jobs—bad jobs. 

How bad a problem is that? Here’s how I started:

We spend most of our waking hours either at work or thinking about our work.  We are often defined by our work, identified by it.   When our work gives us meaning and dignity, we feel fulfilled. We are happier.  When we are happier, society is healthier.  But according to the International Labor Organization, more than 900 million people in the world have jobs that do not provide a living wage, let alone dignity and meaning.  They have bad jobs.

Then I went on to describe bad jobs in the retail industry in the U.S.  I started with low wages.  A typical full-time cashier or salesperson who works 40 hours a week—which is supposed to be the definition of a full-time job—does not earn enough money to take care of a family of four.  If he or she is the sole breadwinner in the family, that family will be below the poverty threshold.  And by the way, even so-called “full-time employees” in retail are not actually guaranteed 40 hours a week of work (and pay) because 94% of retailers consider anyone who works more than 32 hours to be a full-timer.  So their income can vary by as much as eight hours of pay from week to week.

From work hours and pay, I moved on to work schedules. You might think that it doesn’t matter so much when the hours are as long as there are enough. If so, you haven’t worked in retail. Schedules can be all over the map; they change all the time and the workers only find out one or two weeks in advance.

I showed the Dalai Lama the schedule of a full-time employee I recently interviewed.  Let’s call her Jane to protect her privacy.  Jane is not even at the bottom of the heap; she’s a manager.  She handles customer problems, equipment problems, and employee problems.   But Jane is an hourly manager and her schedule looks different every single week. 

Here’s what her schedule looked like for one particular week.  You can see that, on Wednesday night, she worked from 5pm to 9pm, but the next morning, her shift began at 5am.  She lives about an hour from the store, so that leaves her 6 hours to eat, sleep, get ready to go to work again. Not to mention details like trying to wind down from work so she can get to sleep. And she’s in her fifties. Imagine having a life or taking care of a young family when your schedule changes like this every single week!

The Dalai Lama doesn’t exactly work a 9-to-5 day, either, but I could tell that he was surprised and perhaps even upset. There were many problems that he probably already knew about coming into the panel.  From the questions he asked, it was clear that he knew about climate change, hunger, and inequality in the world.  But I think he was really surprised to see that jobs could look like this for millions of people, even in a developed country. 

He told me, “There should be an organization to look after these workers.” He was thinking of unions.  He’s right. It’s unreasonable for workers to be treated this way.  It’s unreasonable for companies to operate this way, especially when we know that it is possible and highly profitable to operate differently (see my HBR piece on this).

I think we all need to do our part to take care of these workers.  We all need to do our part to convince companies to operate differently.  What can we do?  Here’s what I told His Holiness:

At a minimum, we can do something as customers.  When either of two stores or either of two restaurants has what you want at the price you want it, why not choose the one that treats its employees better?  When customers care, companies may also start caring.

Our politicians can certainly play a role. When they speak about the need for more jobs, they can start mentioning not just more jobs in terms of quantity but also better jobs in terms of quality.  We don’t just need more high-tech jobs and fewer retail jobs. We need more jobs of any kind, which pay a living wage and give a person a sense of doing something worth doing—which can easily be retail. Politicians can’t solve this problem themselves, but they can acknowledge it and encourage companies to offer better jobs.

Thought leaders like the Dalai Lama can play a role: They have a chance to communicate the message to business leaders, often with a lot of media and other people looking on. And if they want to know how companies can do better—if that’s really true or just wishful thinking—I am happy to send them my papers and case studies (and certainly my book to be published next fall!).

And professors, like me, who teach future managers, can play a role.  In addition to teaching our students tools and techniques, we can start teaching them how to use those tools in a meaningful way. We can remind them that there are different ways to make money. Some ways are good just for companies and some ways are more sustainable in that they are good for companies, their employees, and society.  We can encourage our students to take the better way and teach them how to get there.

We can all do our part so that there are more people in this world who feel the way Patty Donovan feels about her job.  Patty works at QuikTrip and she’s proud to have me use her name and QuikTrip’s. QuikTrip is a big chain of convenience stores that have gas stations. Patty’s job includes, among other things, such seemingly unpleasant tasks as cleaning gas pumps and toilets.  But she doesn’t see her job as a rotten job at all—not even as an okay job with some rotten parts. Like other QuikTrip employees I interviewed, she sees her job as something much bigger.  Here’s what she told me:

“You're working with 12 or 14 people . . . they go out and they touch 12 or 14 people . . . so I get to make a really big impact in so many people's lives, just by trying to get them to see . . . what QT's ending goal is and that's for everybody to be successful, you know, and everybody to be happy. “

Patty finds meaning and dignity in her work and she is paid well, has good benefits, and doesn’t have to juggle a schedule that would drive anyone crazy.  

Every person who wants to be a manager in a business has the power to ensure that people who work with him or her have dignity and meaning in their work, even if their job is to clean toilets.  And that’s powerful. We can make a big difference in this world if we want to. And that would make our lives more meaningful and ourselves happier! As Patty herself said of her own job taking good care of customers and being taken good care of by her employer, “What else do you want in life?”

WalMart’s Greeters Swept Away in the Vicious Cycle of Retailing

In The Wal-Mart Way, former vice chairman and COO Don Soderquist makes a point of how important little things such as having greeters can be for customer service. “The Wal-Mart organizational culture begins with a positive can-do attitude,” he writes, “which welcomes our customers at the front door in the person of a greeter.” Indeed, it’s often the case that the greeter is the only WalMart employee customers actually talk to. 

So it seemed ominous to me when WalMart recently decided to reassign the greeters to other tasks during the day shift and eliminate them altogether from the night shift. A lot of other industry observers also disapproved, predicting that WalMart was sacrificing the personalization of the customer experience and might also suffer from greater shrinkage. Some argued that greeters, who are often older employees, may not work out that well in other tasks.

I immediately suspected that the elimination of greeters is part of something bigger.  To me, it is a sign that WalMart, like many other retailers, is operating in what I call a vicious cycle (see my recent Harvard Business Review article that describes the vicious cycle of retailing in detail) and that things are therefore getting worse for the company. 

Let me explain the vicious cycle using Borders as an example. As my older son says, Borders is unfortunately not with us anymore.  The company went bankrupt last year.  Obviously, many things contributed to the bankruptcy.  Bookselling is a tough industry with many trends operating against brick-and-mortar retailers, including the emergence of Amazon during late 1990s, the popularity of digital music, and then the rise of electronic books.  But still, Borders didn’t have to be the first book retailer to disappear.  

In fact, Borders used to be a great company, especially during the 1990s.  I say that without hesitation because I did a lot of research there.  But then things started changing and the company lost its way.  I could write a long article on all the things the company could have done differently to survive, but keeping to the subject—WalMart’s greeters—let me focus on a few mistakes Borders did in managing store employees.

Borders stores used to be quite profitable and store employees were a part of that.  Not surprisingly, Borders used to have better labor practices than a lot of other retailers—better selection of employees, more training, and so on.  But when things started getting tough and Borders management was under pressure to cut costs, one of their first moves was to cut labor costs at the stores. 

It started with increasing the percentage of part-timers and cutting down on employee hours.  I analyzed four years of Borders data, from 1999 to 2002, and found that the stores were on average understaffed—there simply weren’t enough employees to get all the work done.  In fact, my analysis showed that the company would have made higher profits if it had kept more employees working at the stores. Understaffing then led to operational problems.  At some stores, boxes of new books just sat in the backroom for weeks because there weren’t enough employees to shelve them.  Thousands of books that were supposed to be replenished from storage locations just sat in storage for a long time.  Books that were supposed to be returned to publishers were not pulled from the shelves.

Operational problems like these reduced store sales and profits.  When sales decreased, labor budgets shrank. Store managers with shrinking budgets certainly couldn’t increase staffing levels, so the vicious cycle continued…

This cycle is not specific to Borders; most retailers suffer from it.  But then something else happened at Borders.  When things got worse, Borders eliminated “community relations coordinators” from many of its stores.  What did community relations coordinators do?  The short description for this job title was: “Responsible for creating and maintaining strong ties in the market for the purpose of creating a community presence and to increase our customer base.” Community relations coordinators localized the stores and made them part of the community.  

I think we would all agree that making stores part of a community is important for a lot of retailers that have to compete with online stores; it was extremely important for Borders and they had been pretty good at it.  

I don’t know if greeters are as important to WalMart as community relations coordinators were to Borders.  But if they are, then their elimination could mean that the vicious cycle is getting really bad at WalMart and—as is the way with vicious cycles—will only get worse.

My HBR Blog Post

I recently wrote a blog post for HBR describing why even low-cost retailers should invest more in store labor.  Here's a link to it. My great friend Andrew McAfee has related blog post "Can Normal Companies Provide Good Jobs? Yes."

Have a New Year’s Resolution? Make that a 100% Commitment

One reason I love what I teach and research is because many of the lessons are applicable not just to business but to life in general. During this time of the year, we often read and think about resolutions for the New Year. Here is a bit of advice to those of us who want to stick to our New Year’s resolutions: choose just a few things that really matter and make a 100% commitment; not 90% or 95%, but really 100% commitment.

This advice comes from a case I taught in my service operations course last semester about Bugs Burger Bug Killers (BBBK), a pest extermination company. While all other companies in their industry promised to reduce pests, BBBK promised to eliminate them and gave a 100% service guarantee to boot. They said “if we don’t satisfy you 100%, we don’t take your money.” How much were their customers (hotels and restaurants) willing to pay for a 100% guarantee? A lot! BBBK charged ten times more than their competitors and made a ton of money.

What is beautiful about this guarantee is that it was BBBK’s 100% commitment to it that allowed it to provide it while still being very profitable. The lessons from BBBK are easily applicable to other businesses. When companies make a 100% commitment to their values or principles, they are more likely to be successful in achieving them for at least two reasons: 1- 100% commitment prevents them from giving in to short-term pressures and make exceptions. 2- 100% commitment forces them to make operational decisions or innovations they wouldn’t have made otherwise.

Let me describe these reasons using the following example from life. Say that one of the problems in your life is that you work too much and that you don’t spend enough time with your family. You know that this is bad for your and your family’s long-term happiness. So, during the next year you decide that you will dedicate your weekends to spend time with your family.

1- What do you do when there is an important project that is due Monday and by Friday evening you find out that you are way behind? Would you make an exception just this one time and work that weekend? I bet that without a 100% commitment, most of us would make this exception and many other exceptions like this and have short-term wins, like a project well delivered. But in the end, we will end up working most weekends again and lose in the long-term. We will probably regret all the time lost with our children.

If we are tempted to give in to short-term pressures in the context of our families, imagine how easy it would be to give in to them in the context of business. Unless certain values/principles are practiced 100% of the time, people may be tempted to make exceptions. They may make bad or unethical decisions, especially if they work for companies that are constantly under short-term performance pressures.

Making a 100% commitment to certain values or principles eliminates these exceptions and saves us from making decisions that hurt us in the long term.

2- When we know that we will spend all weekends with our family, our “work time” will be constrained. As a result, we will be forced to find ways to be more productive during the five days we spend at work. We will probably eliminate much of the time we waste surfing the web or hanging out in our colleagues’ offices and make lots of other decisions that make us more productive. We may become so productive that we may end up doing better both professionally and personally.

This again applies so well to companies. In retail, for example, there are some companies that commit to offering good jobs to their employees. They pay higher salaries and offer more benefits than their competitors. Having higher labor costs forces these companies to innovate in ways they wouldn’t have innovated otherwise. As I explain in my recent HBR article, these retailers end up making operational decisions that are very different than their competitors. And in the end, they perform much better than their competitors.

So that’s my two cents for New Year’s resolutions. Make a commitment and stick to it 100%.

Happy New Year!