CRUMMY RETAIL JOBS ARE A CORPORATE CHOICE, NOT A LAW OF NATURE

Right on the front page of Sunday’s New York Times there was a story about part-time work in retail.  Steven Greenhouse, a Times reporter, and author of The Big Squeeze, highlighted the tough working conditions for part-time employees, especially their struggles with too few hours and ever-changing schedules.

As someone who has been studying retail for a while, I was not surprised by what I read.  But looking through the readers’ comments, I saw that many were surprised and upset.  Some likened the work conditions Greenhouse described to slavery and some blamed capitalism and greed for producing these bad jobs.  But other readers pointed out that bad jobs are the price society pays for low prices.  If companies were to pay more money to their employees or provide better working conditions, then the prices we all pay would have to go up. 

For example, a reader from Manassas, VA wrote: ”If ‘we the people’ demand that companies such as Jamba Juice and Fresh and Easy (and Walmart) hire more full-time and near-full-time employees, we should not be surprised when the prices charged to us go up to cover additional employee costs. We have demanded lower and lower prices for years now. As a result, the working conditions at companies have been squeezed, the benefits packages have been nearly slimmed out of existence, and the hours allotted to each worker have been cut.”

The problem with this very common view is that it assumes that an employee working at a low-cost retailer can’t be any more productive than he or she currently is.  It’s mindless work so it doesn’t matter who does it.  If that were true, then it really wouldn’t make any sense to pay retail workers any more than the least you can get away with.

One reader from Austin, TX was angry enough to call for a boycott, but even he bought into the bad-jobs-for-low-prices assumption: “We have a civic responsibility to boycott establishments that abuse their workers in the name of efficiency, even though this will mean higher prices.”

But this assumption is plain wrong.  Even low-cost retail work is not trivial and how you perform that work makes a big difference for the company’s bottom line.  This is not just my opinion; there are successful low-cost retailers that prove it.  These retailers invest in their employees and complement that investment with a particular set of operational decisions that I have identified.  That way, their employees are more productive. Far from being a mere cost—a drag on profits—these well-paid employees, with all their expensive benefits and training, are seen as an asset—a generator of profits.  These companies demonstrate that there is no need to choose between low prices and good jobs. It is possible (though nobody said it’s easy) to provide the lowest prices to customers and much better jobs for employees and great returns for shareholders, all at the same time. 

Let me give an example that is related to part-time work.  As Greenhouse’s article mentions, some retailers operate with 85% part-time workers. Their excuse is that they need that much “flexibility.” Sure, some flexibility is needed in retail.  The nature of most service industries is that customer traffic varies greatly.  Sometimes the store is crowded, sometimes not. But flexibility for 85% of the employees?  That’s just ridiculous!  

How do I know it’s ridiculous? Mercadona, Spain’s largest supermarket chain, offers the lowest prices in the country and it does so with over 85% of its employees full-time and even salaried, with very predictable schedules that are provided one month in advance.  Yes, these are the same employees—cashiers, people bringing bananas out from the stockroom—that other companies need to be so “flexible” with.

Don’t Mercadona customers visit the stores at different times?  Don’t the stores need flexibility?  You bet they do.  Go into a Mercadona store in the afternoon and it’s almost empty.  It’s the siesta time, I guess.  Go back in the evening and it’s full of people.  But pretty much the same number of workers are there throughout the day.

How does Mercadona get away with this? It invested in its employees.  Mercadona spends about €5,000 per new employee in a four-week training program which includes cross-training. So when traffic is high, employees help customers and when traffic is low, those same employees shelve goods and order merchandise.  There’s always something productive to do and pretty much any employee has been trained to do it well. That’s Mercadona’s idea of flexibility.

And by the way, Mercadona doesn’t do this for charity.  It’s highly profitable.  At a time when Spain is struggling (to put it mildly), Mercadona is thriving!

So it’s not the need to offer low prices that produces the kind of job Steven Greenhouse describes in his article.  It’s the choice made by companies to offer bad jobs.  We should all be outraged to see so many companies making the choice to rely on bad jobs.  It’s the biggest waste in so many ways. It’s a waste of human talent and human dignity.  It’s a waste of corporate profits and shareholder value. And it’s totally unnecessary. We all need to do our part to stop all this suffering.  How?  See my previous post.

Telling the Dalai Lama about Bad Jobs in Retail

Last week, I had the privilege of presenting my research to His Holiness the Dalai Lama.  My presentation was part of a panel in which scholars talked about the world’s big problems. Each of us spoke about what research in our field said about one of those problems, including what we could do to improve the situation.  Naturally, I talked about jobs—bad jobs. 

How bad a problem is that? Here’s how I started:

We spend most of our waking hours either at work or thinking about our work.  We are often defined by our work, identified by it.   When our work gives us meaning and dignity, we feel fulfilled. We are happier.  When we are happier, society is healthier.  But according to the International Labor Organization, more than 900 million people in the world have jobs that do not provide a living wage, let alone dignity and meaning.  They have bad jobs.

Then I went on to describe bad jobs in the retail industry in the U.S.  I started with low wages.  A typical full-time cashier or salesperson who works 40 hours a week—which is supposed to be the definition of a full-time job—does not earn enough money to take care of a family of four.  If he or she is the sole breadwinner in the family, that family will be below the poverty threshold.  And by the way, even so-called “full-time employees” in retail are not actually guaranteed 40 hours a week of work (and pay) because 94% of retailers consider anyone who works more than 32 hours to be a full-timer.  So their income can vary by as much as eight hours of pay from week to week.

From work hours and pay, I moved on to work schedules. You might think that it doesn’t matter so much when the hours are as long as there are enough. If so, you haven’t worked in retail. Schedules can be all over the map; they change all the time and the workers only find out one or two weeks in advance.

I showed the Dalai Lama the schedule of a full-time employee I recently interviewed.  Let’s call her Jane to protect her privacy.  Jane is not even at the bottom of the heap; she’s a manager.  She handles customer problems, equipment problems, and employee problems.   But Jane is an hourly manager and her schedule looks different every single week. 

Here’s what her schedule looked like for one particular week.  You can see that, on Wednesday night, she worked from 5pm to 9pm, but the next morning, her shift began at 5am.  She lives about an hour from the store, so that leaves her 6 hours to eat, sleep, get ready to go to work again. Not to mention details like trying to wind down from work so she can get to sleep. And she’s in her fifties. Imagine having a life or taking care of a young family when your schedule changes like this every single week!

The Dalai Lama doesn’t exactly work a 9-to-5 day, either, but I could tell that he was surprised and perhaps even upset. There were many problems that he probably already knew about coming into the panel.  From the questions he asked, it was clear that he knew about climate change, hunger, and inequality in the world.  But I think he was really surprised to see that jobs could look like this for millions of people, even in a developed country. 

He told me, “There should be an organization to look after these workers.” He was thinking of unions.  He’s right. It’s unreasonable for workers to be treated this way.  It’s unreasonable for companies to operate this way, especially when we know that it is possible and highly profitable to operate differently (see my HBR piece on this).

I think we all need to do our part to take care of these workers.  We all need to do our part to convince companies to operate differently.  What can we do?  Here’s what I told His Holiness:

At a minimum, we can do something as customers.  When either of two stores or either of two restaurants has what you want at the price you want it, why not choose the one that treats its employees better?  When customers care, companies may also start caring.

Our politicians can certainly play a role. When they speak about the need for more jobs, they can start mentioning not just more jobs in terms of quantity but also better jobs in terms of quality.  We don’t just need more high-tech jobs and fewer retail jobs. We need more jobs of any kind, which pay a living wage and give a person a sense of doing something worth doing—which can easily be retail. Politicians can’t solve this problem themselves, but they can acknowledge it and encourage companies to offer better jobs.

Thought leaders like the Dalai Lama can play a role: They have a chance to communicate the message to business leaders, often with a lot of media and other people looking on. And if they want to know how companies can do better—if that’s really true or just wishful thinking—I am happy to send them my papers and case studies (and certainly my book to be published next fall!).

And professors, like me, who teach future managers, can play a role.  In addition to teaching our students tools and techniques, we can start teaching them how to use those tools in a meaningful way. We can remind them that there are different ways to make money. Some ways are good just for companies and some ways are more sustainable in that they are good for companies, their employees, and society.  We can encourage our students to take the better way and teach them how to get there.

We can all do our part so that there are more people in this world who feel the way Patty Donovan feels about her job.  Patty works at QuikTrip and she’s proud to have me use her name and QuikTrip’s. QuikTrip is a big chain of convenience stores that have gas stations. Patty’s job includes, among other things, such seemingly unpleasant tasks as cleaning gas pumps and toilets.  But she doesn’t see her job as a rotten job at all—not even as an okay job with some rotten parts. Like other QuikTrip employees I interviewed, she sees her job as something much bigger.  Here’s what she told me:

“You're working with 12 or 14 people . . . they go out and they touch 12 or 14 people . . . so I get to make a really big impact in so many people's lives, just by trying to get them to see . . . what QT's ending goal is and that's for everybody to be successful, you know, and everybody to be happy. “

Patty finds meaning and dignity in her work and she is paid well, has good benefits, and doesn’t have to juggle a schedule that would drive anyone crazy.  

Every person who wants to be a manager in a business has the power to ensure that people who work with him or her have dignity and meaning in their work, even if their job is to clean toilets.  And that’s powerful. We can make a big difference in this world if we want to. And that would make our lives more meaningful and ourselves happier! As Patty herself said of her own job taking good care of customers and being taken good care of by her employer, “What else do you want in life?”

WalMart’s Greeters Swept Away in the Vicious Cycle of Retailing

In The Wal-Mart Way, former vice chairman and COO Don Soderquist makes a point of how important little things such as having greeters can be for customer service. “The Wal-Mart organizational culture begins with a positive can-do attitude,” he writes, “which welcomes our customers at the front door in the person of a greeter.” Indeed, it’s often the case that the greeter is the only WalMart employee customers actually talk to. 

So it seemed ominous to me when WalMart recently decided to reassign the greeters to other tasks during the day shift and eliminate them altogether from the night shift. A lot of other industry observers also disapproved, predicting that WalMart was sacrificing the personalization of the customer experience and might also suffer from greater shrinkage. Some argued that greeters, who are often older employees, may not work out that well in other tasks.

I immediately suspected that the elimination of greeters is part of something bigger.  To me, it is a sign that WalMart, like many other retailers, is operating in what I call a vicious cycle (see my recent Harvard Business Review article that describes the vicious cycle of retailing in detail) and that things are therefore getting worse for the company. 

Let me explain the vicious cycle using Borders as an example. As my older son says, Borders is unfortunately not with us anymore.  The company went bankrupt last year.  Obviously, many things contributed to the bankruptcy.  Bookselling is a tough industry with many trends operating against brick-and-mortar retailers, including the emergence of Amazon during late 1990s, the popularity of digital music, and then the rise of electronic books.  But still, Borders didn’t have to be the first book retailer to disappear.  

In fact, Borders used to be a great company, especially during the 1990s.  I say that without hesitation because I did a lot of research there.  But then things started changing and the company lost its way.  I could write a long article on all the things the company could have done differently to survive, but keeping to the subject—WalMart’s greeters—let me focus on a few mistakes Borders did in managing store employees.

Borders stores used to be quite profitable and store employees were a part of that.  Not surprisingly, Borders used to have better labor practices than a lot of other retailers—better selection of employees, more training, and so on.  But when things started getting tough and Borders management was under pressure to cut costs, one of their first moves was to cut labor costs at the stores. 

It started with increasing the percentage of part-timers and cutting down on employee hours.  I analyzed four years of Borders data, from 1999 to 2002, and found that the stores were on average understaffed—there simply weren’t enough employees to get all the work done.  In fact, my analysis showed that the company would have made higher profits if it had kept more employees working at the stores. Understaffing then led to operational problems.  At some stores, boxes of new books just sat in the backroom for weeks because there weren’t enough employees to shelve them.  Thousands of books that were supposed to be replenished from storage locations just sat in storage for a long time.  Books that were supposed to be returned to publishers were not pulled from the shelves.

Operational problems like these reduced store sales and profits.  When sales decreased, labor budgets shrank. Store managers with shrinking budgets certainly couldn’t increase staffing levels, so the vicious cycle continued…

This cycle is not specific to Borders; most retailers suffer from it.  But then something else happened at Borders.  When things got worse, Borders eliminated “community relations coordinators” from many of its stores.  What did community relations coordinators do?  The short description for this job title was: “Responsible for creating and maintaining strong ties in the market for the purpose of creating a community presence and to increase our customer base.” Community relations coordinators localized the stores and made them part of the community.  

I think we would all agree that making stores part of a community is important for a lot of retailers that have to compete with online stores; it was extremely important for Borders and they had been pretty good at it.  

I don’t know if greeters are as important to WalMart as community relations coordinators were to Borders.  But if they are, then their elimination could mean that the vicious cycle is getting really bad at WalMart and—as is the way with vicious cycles—will only get worse.

My HBR Blog Post

I recently wrote a blog post for HBR describing why even low-cost retailers should invest more in store labor.  Here's a link to it. My great friend Andrew McAfee has related blog post "Can Normal Companies Provide Good Jobs? Yes."

Have a New Year’s Resolution? Make that a 100% Commitment

One reason I love what I teach and research is because many of the lessons are applicable not just to business but to life in general. During this time of the year, we often read and think about resolutions for the New Year. Here is a bit of advice to those of us who want to stick to our New Year’s resolutions: choose just a few things that really matter and make a 100% commitment; not 90% or 95%, but really 100% commitment.

This advice comes from a case I taught in my service operations course last semester about Bugs Burger Bug Killers (BBBK), a pest extermination company. While all other companies in their industry promised to reduce pests, BBBK promised to eliminate them and gave a 100% service guarantee to boot. They said “if we don’t satisfy you 100%, we don’t take your money.” How much were their customers (hotels and restaurants) willing to pay for a 100% guarantee? A lot! BBBK charged ten times more than their competitors and made a ton of money.

What is beautiful about this guarantee is that it was BBBK’s 100% commitment to it that allowed it to provide it while still being very profitable. The lessons from BBBK are easily applicable to other businesses. When companies make a 100% commitment to their values or principles, they are more likely to be successful in achieving them for at least two reasons: 1- 100% commitment prevents them from giving in to short-term pressures and make exceptions. 2- 100% commitment forces them to make operational decisions or innovations they wouldn’t have made otherwise.

Let me describe these reasons using the following example from life. Say that one of the problems in your life is that you work too much and that you don’t spend enough time with your family. You know that this is bad for your and your family’s long-term happiness. So, during the next year you decide that you will dedicate your weekends to spend time with your family.

1- What do you do when there is an important project that is due Monday and by Friday evening you find out that you are way behind? Would you make an exception just this one time and work that weekend? I bet that without a 100% commitment, most of us would make this exception and many other exceptions like this and have short-term wins, like a project well delivered. But in the end, we will end up working most weekends again and lose in the long-term. We will probably regret all the time lost with our children.

If we are tempted to give in to short-term pressures in the context of our families, imagine how easy it would be to give in to them in the context of business. Unless certain values/principles are practiced 100% of the time, people may be tempted to make exceptions. They may make bad or unethical decisions, especially if they work for companies that are constantly under short-term performance pressures.

Making a 100% commitment to certain values or principles eliminates these exceptions and saves us from making decisions that hurt us in the long term.

2- When we know that we will spend all weekends with our family, our “work time” will be constrained. As a result, we will be forced to find ways to be more productive during the five days we spend at work. We will probably eliminate much of the time we waste surfing the web or hanging out in our colleagues’ offices and make lots of other decisions that make us more productive. We may become so productive that we may end up doing better both professionally and personally.

This again applies so well to companies. In retail, for example, there are some companies that commit to offering good jobs to their employees. They pay higher salaries and offer more benefits than their competitors. Having higher labor costs forces these companies to innovate in ways they wouldn’t have innovated otherwise. As I explain in my recent HBR article, these retailers end up making operational decisions that are very different than their competitors. And in the end, they perform much better than their competitors.

So that’s my two cents for New Year’s resolutions. Make a commitment and stick to it 100%.

Happy New Year!

How Operations Management Enables Dignity and Excellence

A couple months ago I was asked to give a speech to Boston area high school students in Harvard College’s Youth Leadership Program.  The timing worked for me so I said yes.  But as the date got closer I started worrying.  This was a leadership program and I was supposed to be inspirational.  But preparing a general leadership speech didn’t sound right given that I don’t teach or study leadership.  Then I came across a speech that Martin Luther King Jr. made to students at a high school in Philadelphia in 1967.  In his speech, King encouraged students to think about their life’s blueprint and said:

Number one in your life's blueprint, should be a deep belief in your own dignity, your worth and your own somebodiness. Don't allow anybody to make you feel that you're nobody. Always feel that you count. Always feel that you have worth, and always feel that your life has ultimate significance.

Secondly, in your life's blueprint you must have as the basic principle the determination to achieve excellence in your various fields of endeavor. You're going to be deciding as the days, as the years unfold what you will do in life — what your life's work will be. Set out to do it well.

King added:

If it falls your lot to be a street sweeper, sweep streets like Michelangelo painted pictures, sweep streets like Beethoven composed music, sweep streets like Leontyne Price sings before the Metropolitan Opera. Sweep streets like Shakespeare wrote poetry. Sweep streets so well that all the hosts of heaven and earth will have to pause and say: Here lived a great street sweeper who swept his job well. If you can't be a pine at the top of the hill, be a shrub in the valley. But be the best little shrub on the side of the hill.

After reading King’s speech, I knew what I wanted to communicate to my young audience.  Through examples from different supply chains, I would help them discover the importance of each and every job, from cleaning classrooms to designing computers to sewing zippers on shorts to stocking merchandise at supermarkets.  Every job matters!  And as King argues, in every job people can achieve dignity and excellence. 

I just wish there were more of these jobs. Unfortunately, many companies do not provide jobs where people can feel good about what they do, find meaning, and strive for excellence.  Let me give an example from retail, an industry that employs close to a fifth of the US workforce.  In this industry, most companies choose to offer bad jobs. I want to emphasize the word “choose” here because my research shows that offering good or bad jobs is not a necessary outcome of being in this particular industry or competing on the basis of lowest prices.  

So how bad are retail jobs?  Let’s start with wages.  According to Bureau of Labor Statistics the mean annual wage for a cashier working 40 hours in 2010 was $19,810, less than half of mean annual wage of all occupations.  And working 40 hours a week is not a guarantee even for full-time employees because 94% of retailers consider anyone working more than 30 hours a full-timer.  Obviously, the situation is worse for part-timers. 

With these wages it is not surprising that retail employees get disproportionately more public assistance than employees in other industries.  Here by the way are some depressing data about food stamps.

Beyond low wages, retailers are notorious for providing unstable work schedules.  Think about a job where your work schedule changes dramatically from one week to the next and you only learn about your schedule one week in advance.  How is that for managing the rest of your life, especially if you have children and depend on a second job to get by? 

Low wages, unstable schedules, along with very limited training and little opportunity for advancement are not what I would include in a recipe for dignity and excellence.  And lack of dignity and excellence certainly shows when we shop at these stores. We as customers are used to problems like misplaced products, disorganized shelves, obsolete products lingering on the shelves, dirty stores, and poor customer service.

The excuse retailers often make for lack of investment in labor is that this is the only way to provide the lowest prices.  So if retailers offer jobs that allow for dignity and excellence customers will have to pay higher prices.  I find this presumed trade-off between low prices and investment in employees a wrong one if retailers make the right operating decisions.  I’ve studied highly successful retailers ranging from convenience stores to supermarkets to wholesale clubs that not only offer the lowest prices and make a lot of money, but they ensure that their employees have good jobs.  And their secret sauce is operations!  These retailers consistently make operating decisions that are good for employees, customers, and investors all at the same time.     

So there you have it.  Operations management enables what Martin Luther King preaches.  We don’t have to study leadership to inspire high school students or managers; we can easily do that through studying operations management.

My Last Class at HBS

When I first started teaching at HBS I found the last class of the semester to be the most difficult.  While many of my colleagues shared their life lessons or communicated big, important messages, I felt I didn’t have much to offer my students. So I used the last class to wrap-up the important concepts we had learned throughout the semester. 

But after my first two years, I started wanting to do more.  So, as I did before almost every class, I knocked on the door of my great colleague Kent Bowen and asked for his advice.  And as he always did, Kent started asking questions. Why did I want to do something different? What did I want to communicate?  Why?  And at the end of our meeting, Kent gave me a case about the life of Jai Jaikumar.

After reading the case, I knew exactly why Kent shared it with me.  The case described how Jai was saved by a shepherd woman after a tragic accident while climbing the Himalayas.  And it provided an opportunity to communicate something I truly believe in: luck plays a big role in our success and success brings an obligation to serve others.  Since 2008, I have been teaching this case on my last class.  And thanks to Kent, the last class has become one of my favorite classes.

I just taught the Jai Jaikumar case in my supply chain elective course. But this was not just the last class of the semester but also my last class at HBS.  This summer, I am joining the Sloan School of Management at MIT.  I am thrilled to have the opportunity to work with world-class researchers in my field, teach Sloan students, and have time to write my book.

But I will miss the HBS classroom.  Teaching at HBS was an incredibly rewarding experience for me.  During the first years, my objective was simply surviving in the classroom.  I can’t tell you how many bad dreams I had in which I did not know the material or I was not able to control the 90 bright students.  I had nightmares about chaos in the classroom with students dancing, yelling, and walking in and out. Surviving in the classroom was a lot more difficult than I had predicted. Luckily, I had a great set of students and colleagues like Jan Hammond and Roy Shapiro who helped me get better everyday.

I still have nightmares, especially in the beginning of the semester, about teaching.  But my objective is no longer surviving in the classroom.  Rather, it is sharing with my students my research, and most recently, my point of view on business and life.  As I started connecting my teaching with my research, I began seeing my students as collaborators with my research.  They challenged my ideas, offered alternate explanations, and asked great questions that forced me to think deeper about issues I was studying.  I am grateful for all that they taught me.

As I started sharing my point of view with students, I began having big hopes.  I hope that my students will be more likely to start or join companies with strong values and priorities and make operating decisions that are good not just for profits, but also for employees and customers.  I hope that my students will be less likely to give into the temptation (or pressure) to make short-term decisions at the expense of their employees and keep focusing on the long-term.  I hope that my students will define their success not just by how much money they make, but how they made the world a better place by their presence.

It was an absolute privilege to take part in the development of leaders who will make a positive difference in the world.  Thank you HBS for the opportunity!  And thank you my students this term who made my last class one I will never forget.