This article is by Zeynep Ton, an adjunct associate professor of operations management at the MIT Sloan School of Management and the author of The Good Jobs Strategy: How the Smartest Companies Invest in Employees to Lower Costs and Boost Profits.
Nearly one fifth of American workers work in retail and fast food, and they have bad jobs. They earn poverty-level wages, have unpredictable schedules that make it hard to hold on to a second job, and have few opportunities for success and growth. These are not just people who are uneducated or unskilled. In 2010 more than a third of all working adults with jobs that did not pay a living wage had at least some college education or a degree.
The conventional wisdom in business is that bad jobs like this are necessary to keep prices low and profits high. If a low-cost retail chain were to pay its cashiers more, then it would either make less money or have to raise its prices. Implicit in this logic is the seemingly self-evident tradeoff between low prices and good jobs. But that is a false tradeoff. Even in highly competitive industries like low-cost retail, it is possible to pay employees decent wages and treat them well while giving customers the low prices they demand.
I studied four retail chains that manage to do this: Costco, Trader Joe’s, QuikTrip (a U.S. chain of convenience stores with gas stations), and Mercadona (Spain’s largest supermarket chain). They offer their employees much better jobs than their competitors, all the while keeping their prices low and performing well in all the ways that matter to any business. They have high productivity, great customer service, healthy growth, and excellent returns to their investors. They compete head-on with companies that spend far less on their employees, and they win.
When I analyzed these four companies, I found that despite all their differences, they had one element in common: They all make a set of smart choices that allow them to achieve the combination of good jobs, low prices, and great results. These companies all follow what I call the good jobs strategy. It has two components.
First, these companies consider their workforce not as a cost to be minimized but as a strategic asset. They invest in their employees with the expectation that they will get even more back in terms of labor productivity, customer service, cost-cutting, innovation, and flexibility during difficult times. Most businesses consider their high-level managers and skilled professionals to be strategic assets. But these companies see their front-line people that way, too.
Second, these companies make smart operational choices that enable their employees to be more productive and motivated and play a much bigger role in driving sales and reducing costs than in most retail chains. Good design in operations is the secret ingredient that makes the good jobs strategy work.
This combination of investment in people and operations works so well because the retail front line is a much more complex environment than people think. Take a supermarket, a setting full of bad jobs. In a typical supermarket, employees manage around 40,000 products. They serve more than 2,000 customers a day, who arrive at different times and want different things. They manage over a hundred sales promotions per week. There is a lot going on, and there is a lot that can be done more productively and profitably by workers who are motivated, proud of their work, and not always in too much of a rush. Of course, there is also a lot that can go wrong if workers are not trained, not motivated, or just too few in number. Wal-Mart executives are reported to have said that improving shelving alone could be a $3 billion opportunity.
But if the good jobs strategy is a better strategy, why don’t more companies follow it?
Most companies are wired to emphasize the short term at the expense of the long term. Think of it this way. We all know that regular exercise is good for us. It makes us stronger, healthier, and apparently even smarter. It helps us live longer. Yet most of us don’t do it, because it requires discipline, hard work, and a long-term commitment. The good jobs strategy works, but you have to invest in it before you can collect on it, and you have to keep at it even when cutting labor costs would alleviate a budget crunch.
We need more companies to adopt the good jobs strategy. It requires a paradigm shift in the way executives think about employees and the work they do. It requires long-term thinking. But it can be done.
It is within the power of business leaders to determine what it means to run a good business. Delivering low prices and high profits at the expense of employees is one definition. Delivering low prices, great service, high profits, and good jobs is a better definition. If company leaders are worried about taking the plunge, a little push from customers and investors who agree with this better definition could certainly help.
Retail and fast-food jobs are here to stay. Unless these jobs become better jobs, millions of people who work will continue to live in poverty and rely on public assistance. Millions of people will continue to feel like the retail employee with a college degree and 11 years of experience in advertising who told me, “We are throwaways who are a dime a dozen. Just human robots, really.” And thousands of companies that could be doing as well as the companies I studied will keep struggling along, wasting the amazing profit generators who punch in and punch out on their premises every day.
