Good Jobs are Good Practice

notes on Ton, Zeynep. “Why Good Jobs are Good for Retailers.” Harvard Business Review. Jan-Feb 2012.

Highly successful retail chains — such as Quick-Trip convenience stores, Mercadona and Trader Joe’s supermarkets, and Costco wholesale clubs — not only invest heavily in store employees but also have the lowest prices in their industries, solid financial performance, and better customer service than their competitors.

Bad jobs are not a cost-driven necessity but a choice.

Labor is often a retailer’s largest controllable expense — something like 10% of revenues — so that may be why labor is constantly the focus of cost-cutting measures. It’s also sometimes a matter of philosophy whether a firm sees labor as a cost driver or a sales driver.

Store managers are often evaluated on their ability to meet targets for payroll as percentage of sales, and it’s much easier to managers to control payroll costs than the sales numbers.

And the short term is easier to quantify than the long term. For example, in 2000 a new Home Depot CEO cut staffing and saw immediate financial benefits, but a few years down the line the company was losing customers and sales because their customer service was terrible.

Extensive research has linked high employee turnover and poor training to poor performance. Investing in employees, on the other hand, allows for higher operational execution, which leads to higher sales, profits, larger labor budgets, and thus more good employees etc.

Good operational practices allow retailers to “break the presumed trade-off between investing in employees and maintaining low prices.”

  1. Decrease complexity, offer fewer products, simplify. “High product variety adds costs up and down the supply chain. It increases manufacturing costs and supply and demand mismatch costs.”
  2. Predictable schedules and cross-trained employees. “Unpredictable schedules, short shifts, and dead-end jobs take a toll on employees’ morale. When morale is low, absenteeism, tardiness, and turnover rise, increasing the variability of the labor supply, which makes matching labor with customer traffic more difficult.” Training employees to do different tasks maximizes their usefulness and decreases inefficiency.
  3. Eliminate costly waste in places other than payroll.
  4. Empower employees by putting them in charge of small decisions, like inventory ordering.

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