The Case for Good Jobs | An Excerpt from the Management & Workplace Culture Category
December 14, 2023
From MIT professor and pre-eminent voice on Good Jobs comes a leadership guide for choosing excellence and providing good jobs that offer a living wage, dignity, and opportunities for growth.
The following excerpt comes from Chapter Six of The Case for Good Jobs by Zeynep Ton. The chapter is entitled “Convictions and Values” and begins with a quote from Costco's Jim Sinegal that declares "Seventy cents of every dollar we spend to run our company goes to people." Indeed, as Ton notes, "In 2021, the median hourly wage for Costco's hourly employees was over $25, more than 80 percent higher than the median hourly wage for retail salespeople." That starts to explain why "Costco’s average employee tenure in 2021 was nine years," which in turn explains how the company can afford to offer higher wages. Indeed, it makes one question how other low-cost retailers can afford not to.
Investment in People Is Obvious If You Want to Win with Customers
[Jim] Sinegal’s retail career began in 1954 working for Sol Price, the founder of Fed-Mart, a chain of discount stores. At eighteen, his first job was to unload mattresses. He ended up working twenty-four years for Price. He often says that his business success came from what he learned from Price, especially Price’s business philosophy and values.
Price’s philosophy was simple. The first fiduciary duty of a company was to the customers: provide customers the best value possible—excellent products at the lowest prices. In a memo to staff in 1967, he wrote, “Margin must never be done at the expense of our philosophy. Margin must be obtained by better buying, emphasis on selling the kind of goods we want to sell, operating efficiencies, lower markdowns, greater [inventory] turnover, etc. Increasing the retail prices and justifying it on the basis that we are still ‘competitive’ could lead to a rude awakening as it has with so many.”
You can see the prioritization of customers at Costco. Since 1983, Costco’s operational mission has been to bring members quality goods and services at the lowest possible price. Strong operational execution is critical for achieving that mission. Poor handling of fresh produce or frozen products could increase costs significantly. If employees forget or don’t have time to replenish empty shelves, sales will be lost. High volume is key for keeping costs low and paying employees well; Costco can’t achieve high volume if customers aren’t processed quickly at checkout, if empty boxes aren’t immediately removed from the shelves, or if shopping carts are not brought back in from the parking lot. Reducing costs requires continuous improvement. The company can’t improve if managers never have time to observe operations calmly and carefully and don’t hear ideas from the people doing the work.
When Sinegal takes my students on a tour of a Costco warehouse, they see how he can look at the store through the eyes of the customer, attentive to the details of each product and to how it is priced and presented. He’ll point out a jar of Kirkland brand cashews and talk about their size, consistency, and freshness. He’ll point out some Kirkland shirts and invite the students to touch them and feel the quality and compare the price to others. I once saw him write a note to himself to look into why strawberries in the Waltham warehouse were cheaper than those in a California warehouse he had just visited. But that amount of attention to detail is not just Sinegal; it’s pervasive throughout Costco. And the point here is that it matters because, in Jim Sinegal’s eyes, the frontline work matters. It’s not just stocking shelves and sweeping floors. It’s what gives members great service at low prices, which is what makes Costco valuable for investors.
Leaders outside Low-Cost Retail
Leaders of other companies in which serving customers well is a priority have also concluded that being customer centric requires you to be frontline centric.
Isadore Sharp, the founder and chairman of the Four Seasons luxury hotel chain, told me that since the founding of Four Seasons in 1960, luxury there has been defined by service. The hotel’s guests count on time-saving, problem-solving, fast, personal, unobtrusive, and error-free service. A chipped plate that’s unnoticed by a dishwasher, an understaffed pressing department that makes a customer wait in his underwear for his suit to show up, or a rude waitress could ruin the service experience and damage Four Seasons’ reputation. Their goal is 100 percent satisfaction. Even an error that the guest doesn’t notice is considered unacceptable. “The outcome in our industry,” Sharp explains, “normally depends on the frontline employees—doormen, bellmen, waiters, maids. … These frontline staff represent our product to our customers. In the most realistic sense, they are the product.” That’s why, whenever Sharp visits a new hotel, he gathers all the staff in a ballroom to let them know where the company is going and their role in making that happen.
If frontline employees are the product, it’s unacceptable—not to mention, irrational—to forgo investment in their ability and motivation. Sharp used a similar logic for why Four Seasons chooses to operate with lower turnover: “The books may show that employees represent the largest share of expense. They don’t show that they also earn the largest share of revenue.” (Another example of how misleading perfectly accurate numbers can be.) How could Four Seasons not invest in people when a disappointing customer contact could turn a potential lifetime patron into an ex-patron griping on TripAdvisor?
Frontline employees are also where the good ideas come from. Sharp told me that not getting ideas from frontline staff to improve the business is not acceptable because “every employee knows more about some part of our work than we managers do.” He then talked about the power of compounding—those small improvements add up to create a huge gap between Four Seasons and its competitors. Leveraging the knowledge of frontline workers to continuously improve value for the customer is at the heart of the Toyota Production System and Total Quality Management, too.
Sharp has been leading Four Seasons for more than sixty years. He has opened hotels all over the world, from Istanbul, Turkey, to Papagayo, Costa Rica. When I asked him how he can trust thousands of people all over the world to make important decisions for customers and the company every day, he responded with a question: “Do you know anyone who doesn’t want to succeed?” Experience has shown him that people can be trusted to do their jobs: “People everywhere just want an opportunity to succeed.” That’s the assumption on which Sharp built his business.
In the insurance world, an exemplar of reliance on and investment in frontline work is Progressive Insurance. Its innovations for customers and its ability to do the most important things in its industry—assessing risk, servicing customers, and managing claims—better than its competitors enabled Progressive to grow its insurance revenues at an annual compounded rate of 13 percent from 1991 to 2021 and become one of the three biggest insurance companies in the United States. Many insurance companies lose money on the operational side and make their money on investing. Progressive has always made money on the operational side. My students asked CEO Tricia Griffith how Progressive could maintain a competitive advantage with services developed decades ago. Why hadn’t the competitors copied them? Griffith replied, “Operational excellence is a mindset”—and therefore not easily copied. She went on to describe the importance of the work frontline employees do. “Claims are our product,” Griffith says. Her first job at Progressive—as a claims representative trainee, crawling under cars and doing estimates in body shops—showed her how important customer service is. It matters that the claims reps have long tenure. It matters that their work is designed to enable them to shine in front of the customer. It’s not surprising, then, that Progressive invests in its employees, including the frontline claims reps.
In the fast-food world, an exemplar of a good jobs system is In-N-Out Burger. Harry Snyder, the founder of In-N-Out Burger, believed that if the burgers weren’t done properly, customers wouldn’t come back. Attention to detail was extremely important, so he would use only four to five slices of the thick middle part of onions and beefsteak tomatoes, the crisp inner leaves of a head of lettuce, and the freshest, higher-grade meat, potatoes, and produce. Snyder didn’t believe in cutting corners. Lynsi Snyder, current CEO of In-N-Out, told Forbes, “We didn’t ever look to the left and the right to see what everyone else is doing, cut corners, or change things drastically or compromise.” Because quality was so important, so was paying higher wages and keeping turnover low. When In-N-Out first started in California, the minimum wage in the state was 65 cents an hour. Snyder paid a dollar an hour, plus one free hamburger per shift. From the beginning, he also emphasized internal promotion—creating careers, not just jobs.
For these leaders, creating trust with customers and employees isn’t an extra burden on top of running a business. It is not in opposition to running a business. It is running the business. It’s a big part of what enables their companies to win competitively and deliver strong returns to their shareholders. And from this customer-centric conception of what the business is, the various frontline-centric elements of the good jobs strategy flow naturally. There’s just no other way to win what these leaders are trying to win.
Adapted from The Case for Good Jobs: How Great Companies Bring Dignity, Pay & Meaning to Everyone’s Work.
Reprinted by permission of Harvard Business Review Press.
Copyright © 2023 by Zeynep Ton.
All rights reserved.