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.