The 2018 MIT Sustainability Summit, held March 8 at the Four Seasons in Boston, focused on the long-term sustainability of future workforces, widening inequality, and the recent proliferation of contract labor. Zeynep Ton took the stage as the morning keynote and spoke about the creation of “good jobs” as an important driver in a sustainable economy. She is an Adjunct Associate Professor of Operations Management at MIT Sloan and the author of The Good Jobs Strategy: How the Smartest Companies Invest in Employees to Lower Costs and Boost Profits. She teaches the new MIT Sloan Executive Education program, Achieving Operational Excellence Through People: Delivering Superior Value to Customers, Employees, and Shareholders.
What are “good jobs”?
Through her research, Ton argues that good jobs are not only possible, but profitable, when companies are willing to achieve operational excellence while also offering their employees a competitive wage, predictable schedules, and training and development opportunities.
Ton’s research began as a doctoral student at Harvard where she focused on retail supply chains. Her goal was to take a company’s point of purchase data to develop algorithms that would identify, forecast, and optimize operational efficiencies. In essence, the data would explain how to get the right product to the right store in front of the right customer at the right time and avoid costly errors throughout the chain.
But despite the algorithms informing the supply chain correctly, Ton began to observe recurring errors and began to dig into why certain errors were so prevalent at certain companies. She discovered that part of the problem was actually due to the company’s labor practices. Companies with lower wages, less employee training, higher turnover, frequent understaffing, and higher rates of absenteeism faced higher rates of errors along their supply chains, thus facing higher operational costs.
Given the competitive landscape most companies face today, and the importance of constantly keeping operational costs low, companies will often—and understandably—look to reduce the cost of their labor. Conventional wisdom also states that paying higher wages will cause prices to rise. But as Ton observed in her research, keeping wages low can actually backfire and cause a costly chain of devaluation at a company. As employees are left untrained and paid paltry sums their work performance suffers. Customers react to the company’s poor performance, and then sales decline. This causes the company to look to save more money, and they reduce their employees’ wages again. This creates a “vicious cycle,” as Ton describes it, where customers, employees, and stakeholders lose in the long run.
This is not an uncommon practice. As recorded by Ton in May 2016, the largest occupation in the U.S., in terms of size, is retail salespeople. Average hours of a full-time retail worker can range from 30-40 per week, including unpredictable early-morning and late-night shifts, a minimum wage of $10 in most states, and a basic healthcare and benefits package. Well below the poverty line, part-time workers often work fewer than 15 hours per week, earn less than 10K per year, and have no benefits at all. “We are throwaway people,” one retail worker said to Ton during her research. “We are a dime a dozen.”
But what happens if you reverse that cycle? Is that overly altruistic or might it actually work? According to Ton and her research, the data shows it works.
Take Mercadona, for example. It is Spain’s largest supermarket chain, comprised of 1,588 stores. The company employs more than 70,000 workers, all on permanent contracts. Upon hire, workers are required to complete four weeks of training, costing the company an average of $6,500 per employee. Employees must also go through twenty additional hours of training each year. Employees receive salaries above the national average of workers in the grocery store industry, and the majority of employees receive a bonus each year.
Leaders of Mercadona believe this combination of training and payment creates employees who are dedicated and flexible when it comes to meeting customer needs. Shift schedules with predictable hours are given out to employees one month in advance. All of this is believed to have helped the company maintain a relatively low level of only 5% employee turnover in 2012. The outcome of all this? Mercadona pricing remains competitive, and its annual revenue has grown from €5.7 million to nearly €21 million in less than 14 years.
QuikTrip serves as another example. Headquartered out of Tulsa, Oklahoma, this chain of 758 convenience stores employs more than 22,000 people, all of whom start with a salary of 40k per year, with benefits. It has a 100% internal promotion policy and a turnover rate of 13%—far below the industry average. QuikTrip ranked 33 on Forbes magazine's list of largest private companies in 2016, and has been consistently listed among Fortune's 100 Best Companies to Work For. In 2016, its pricing remained competitive and its annual revenue was $9.14 billion.
MudBay, an American employee-owned pet store, is a great example of a company that recalibrated its business model to adopt a good jobs strategy and saw positive results after only two years. Between 2011 and 2013, the company increased their employees’ pay by 18%, standardized their work shifts, and saw turnover drop from 45% to 30%. Average same-store sales growth went from 6.5% to 11%, and customer ratings on Yelp, Google, and Facebook soared to 4.8-4.9 out of 5. It was also named Pet Business retailer of the year in 2015.
“While offering higher wages plays an important role in creating good jobs,” Ton explains, “what these companies have actually done successfully is build their culture around a human-centric operations system. They are simply valuing the work and contributions of their people.”
“Having good wages isn’t altruism. It’s good business,” said Jim Sinegal, the founder of Costco, who pays his employees at least $20 per hour. “If we are paying the highest wages, and staying profitable, we attract the best employees. And then because our employees are so enthusiastic and capable, they work more efficiently and come up with better ideas, and the cycle of our business only improves.”
“At MIT,” Ton concluded at the Summit, “we must always state our case with competing theories. So Theory Y is this: Some companies assume that their employees are lazy, disinterested, disloyal, lacking intelligent ideas, and will never improve their ability or performance over time. Theory X is this: Some companies assume that their employees are loyal, smart, and capable, and that they want to do a good job and take on responsibilities, and in the right conditions, will do an amazing job and become better and better at what they do.”
“Here’s what I ultimately learned from my research,” Ton said. “Theory Y and X are both correct. Whatever your assumption is as a company, your employees will prove you right.”
If you would like to learn more, check out Ton’s program, Achieving Operational Excellence Through People: Delivering Superior Value to Customers, Employees, and Shareholders, coming up June 12-13.
(Company information cited above from Wikipedia)