THE BLOG

A Revolution in Retail: Treat Workers Well to Boost Profits

02/20/2014 05:35 pm ET | Updated Apr 22, 2014

Treating workers well can increase profits, says Dr. Zeynep Ton, professor at the MIT Sloan School of Management. Dr. Ton's important new book, The Good Jobs Strategy: How the Smartest Companies Invest in Employees to Lower Costs & Boost Profits, highlights a strategy that allows companies to deliver great value to shareholders and customers while creating good jobs for employees.

Prevailing corporate wisdom says workers are an expense to be cut, rather than an asset to increase profits. But this leads to a downward spiral. Employees often feel mistreated, underpaid and overworked. Staff turnover is high. Workers make errors managing merchandise inside stores and can't deliver good service. Customers can't find help, or suffer long lines at checkout. Companies lose sales. This pattern is particularly evident in retail where low-wage jobs predominate.

The Good Jobs Strategy identified by Dr. Ton turns such conventional wisdom on its head, showing another way:

1) Invest in employees. Pay them well. Offer benefits. Treat them respectfully. Train them. Have a predictable schedule.

2) Leverage the investment in employees with four smart operational choices:

  • Offer Less, for example, offer fewer products and ensure they are good quality and good value.
  • Standardize & Empower, standardize operations to simplify procedures, while empowering employees to respond to customer needs and contribute to continuous improvement.
  • Cross Train employees to perform a wide range of tasks so they can shift to where the needs are, from stocking shelves to cash registers.
  • Hire Enough Workers, build slack into staffing to ensure there are enough employees to take care of customers.

Following this Good Jobs Strategy creates a virtuous cycle. It begins with hiring enough workers, treating them well and training them. Employees can do their jobs well. They are happier in their jobs, stay longer and reduce training costs. Customers have a good shopping experience and are likely to return. The company enjoys higher sales and profits, and can invest more in its employees.

Dr. Ton profiles four companies that follow this strategy successfully. Costco is a great example of doing well by doing the right thing. By following the Good Jobs Strategy, Costco has 72 million members and $103 billion in sales per year. Costco puts workers at the center of its success. Management makes operational choices that lower costs and improve customer satisfaction: they cross-train workers to perform multiple jobs, offer fewer product choices, standardize operations and empower employees to solve problems and recommend changes, and hire enough people so workers are not overly stressed and can do their jobs well.

Unlike Costco, Walmart treats workers as a cost to be minimized. While Costco pays its hourly workers an average of just over $20 an hour, Walmart pays them under $13. Many full-time Walmart employees fall below the poverty line. The government subsidizes Walmart's low wages with food stamps, Medicaid and other programs. These employees are not just teenagers: The median age of a retail worker is 38, many of them raising a family. Yet Costco outperforms Walmart. Dr. Ton points out, "If you invested in Costco stock ten years ago, your money would have tripled. If you invested in Walmart stock, it would have gone up by about 40-50 percent, so Costco returns great value to shareholders."

Dr. Ton demonstrates that companies could make MORE money treating workers well. The evidence is so compelling that this is good for company profits and brand, why don't more companies do it?

There are two major obstacles to following the Good Jobs Strategy. The first is mindset: The prevailing view that labor is a cost to be minimized is still taught in business schools and practiced by management. The second obstacle is measurement: it's easy to see labor cost, harder to measure what employees bring. One is a direct immediate savings, the other is more indirect and longer term profits. And the pressure for short term results is strong.

Moreover, companies following a Bad Jobs strategy can still make money. Many Walmart employees have miserable lives, customers have bad service, and investors are not making as much money as they could -- but they still make money.

Companies don't realize how much poor choices around employees and operations are costing them. "People think offering bad jobs is necessary for low prices," said Dr. Ton in my recent radio interview. "No! It's a choice. It is possible to treat employees well and make good profits. In fact, good jobs is not an unaffordable luxury. It's key to being successful globally."

Following the Good Jobs Strategy would help many companies prosper and millions of employees lead lives of greater dignity and prosperity. Imagine a world where millions of working people are lifted out of poverty, customers enjoy shopping more, and companies' profits soar. We can help make this a reality by taking the following action.

  • Persuade business school faculty to teach the next generation business leaders a longer-term mindset and tools that maximize long-term profits.
  • Shop where workers are treated well: we are all customers, and we can vote with our feet. (Good news, we don't have to pay more.)
  • Educate investors to have a long-term view so they don't push companies to make decisions that come at the expense of long-term performance.
  • Invest in companies that follow the Good Jobs Strategy, and offer shareholder resolutions for those which don't.
  • Inform companies about the Good Jobs Strategy and encourage them to implement it.
  • Change public policy to protect workers by raising the minimum wage, ensuring shifts have a minimum of 4 hours, or giving workers three weeks notice of their schedule so they can plan their lives.

Companies can change. They can start making different choices right now. It requires a commitment from the top. Then employees can earn a decent wage, and find dignity and meaning in their work, while companies make more profit. Here's to that revolution.