Judging by prevailing retail practices, somewhere etched in stone is this edict: “To slay thy competition thou shalt undercut on labor costs.”
But a few apostate companies have strayed from that decree by offering decent wages, good benefits and predictable work schedules. Shockingly, the wayward are prospering.
They include national retail chains Trader Joe’s, Costco and QuikTrip. Costco’s stock, for example, has tripled in the last 10 years (a time when Walmart’s rose only 40 percent). Trader Joe’s sales per square foot are almost triple the supermarket industry average. QuikTrip’s are more than 50 percent higher than the industry average for convenience stores.
Zeynep Ton researched those and other firms for her 2014 book The Good Jobs Strategy. A professor at MIT’s Sloan School of Management, she lays out the business case for happier employees, who create more satisfied customers and ultimately, higher profits.
But that’s only half the story, Ton says. Treating workers better won’t on its own boost sales. To make the approach viable, companies have to combine it with changes in perhaps the least sexy of business arenas: operations. Here are the four commandments of operational excellence in the good-jobs strategy, and the keys to making each work:
1. Simplify: Ton wants companies to offer less, not more. Costco and Trader Joe’s cut their operational costs by, counterintuitively, stocking fewer products and running almost no promotions in which special sales prices are offered. The payoffs are multiple: Workers who are intimately familiar with company products lower costs because there is less complexity and fewer errors.
But key to making less-is-more work is to ensure that what you offer is exactly what your customers want. Trader Joe’s sends its buyers all over the world looking for unusual products, puts them through a rigorous taste test, and in its promotional materials, attaches a story to each. The result is fewer products and customers who are wildly enthusiastic about those offered, says Ton.
2. Standardize and empower: Ton advises companies to automate the small decisions while giving their workers the power to make choices that can’t be automated.
The key is knowing where to standardize and where to empower. Ton recommends standardization for routine operational tasks that don’t change — how to unload a truck at a retail store, for example.
But for tasks that are nonroutine — deciding how merchandise should be displayed to suit local clientele or how to handle a customer with a complicated problem, for example — workers should have discretion to resolve them on their own.
3. Cross-train: Having employees who know how to perform multiple roles creates flexibility. When the cash registers are backing up, the person stocking shelves can step in, and when the cashier is asked where to find glue, they know where to direct the buyer. That makes for happier customers and more satisfied employees who don’t need to be sent home when demand is low. They also learn a variety of tasks, which keeps jobs interesting.
But one key to making cross-training work is to keep cross-trained employees’ skills sharp by regularly forcing them to use what they learn. At Toyota, another company Ton studied, that means employees rotate between workstations every two hours or so.
4. Operate with slack: Ton’s model retailers cut waste everywhere except for labor. They deliberately build slack into their staffing because the costs of understaffing — mainly, unhappy customers — are so steep. Among other benefits, leaving slack in staffing allows employees the time to get involved in continuously improving company processes and products.
One key to making that work is to invest in resources that accurately forecast how long tasks take to complete, instead of using proxies like sales numbers to forecast how much work there is, Ton says. And when routine tasks are highly standardized (see commandment 2) those forecasts become far more exact.