Higher minimum wage, higher profits? News added by Benefits Pro on February 3, 2014

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Joined: September 07, 2011

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By Dan Cook

Leave it to the academics to quickly solve — in theory — those thorny problems that bedevil real world managers.

The latest silver bullet? “Operate with slack” and turn minimum wage workers into models of efficiency and productivity.

This comes to us from a Harvard Business Review article by Zeynep Ton, adjunct associate professor at MIT's Sloan School of Management. Ton shared her thoughts about motivating low-wage workers in the wake of a proposal by President Obama that the minimum wage be raised.

Ton has been studying retailers that employ mostly minimum wage workers to see why some excel and others flail about cluelessly.

She found four to use as case studies: Trader Joe's, Costco, QuikTrips (a gas/convenience food company) and Mercadona, a Spanish retailer.

“Here’s what is common among them. They all follow what I call the good jobs strategy, which is a combination of smart operational choices and investment in people,” she says.

“When I examined these companies, I saw that they made four choices in how they designed their work. They: (1) offer less, (2) combine standardization with empowerment, (3) cross-train, and (4) operate with slack.

“These choices transform their heavy investment in employees into great performance by reducing costs, improving employee productivity, and leveraging a fully capable and committed workforce.”

She notes that, although many of their competitors believe they have an advantage because they spend less on their workforce to try to get expenses low, this actually doesn’t work. It only leads to unhappy workers who won’t go out of their way to help customers or pass on productivity tips to their bosses.

There's a catch to her promise to lead us to the minimum wage worker promised land: She’s only willing to describe in any detail one of her four keys to pulling this trick off. That would be “operate with slack.” To read about the other three, you have to buy her book. Oh, boy.

Anyway, let's take what we're given and hear Ton expound on operating with slack (not slackers).

“Workload in a service setting is always uncertain,” we are told. “You never know how many customers will show up when and what they will want. So it’s easy to have either too many or too few people on the job. In my earlier research, I saw retailers consistently erring on the side of too few. This was no accident; they were more worried about keeping labor cost low than about the consequences of having too few employees.

“Companies that follow the good jobs strategy, on the other hand, consistently err on the side of too many — they operate with slack. That obviously improves customer service and sales, but it also helps companies reduce costs — yes, reduce — by keeping mistakes to a minimum and by giving employees time to contribute to continuous improvement.”

Stay with it, folks. She's getting to the heart of the matter here.
“Operating with slack works great for these companies because it amplifies the benefits of their other three operational choices and their heavy investment in people. For example, because these retailers offer less to their customers and standardize many processes, they have a better sense of what the workload will be at their stores. So while they deliberately err on the high side, they don’t tend to be way off. And since they cross-train, their employees can always be doing something useful (not just make-work) even when there are no customers.”

There’s a sort of catch to her theory. If you follow this “good jobs” path, your employees are not going to be making minimum wages. Nope. You have to pay more than that to get the “good jobs” payoffs. But, she argues, simply paying more doesn’t get the results either.

“The good jobs strategy is much more complicated than that,” she says. (You knew this wouldn’t be easy.)

“You have to get many things right all at the same time. You have to embark on this path with a long-term perspective — you can’t just plug the components in and start raking in profits. But it is a strategy for producing excellence.”

Armed with this intelligence — and an expense account that will support the purchase of her book – employers should stop carping about minimum wage increases and, she tells us, “view it as something of a gift.”

“If firms are forced by law to pay their employees higher wages, they will rethink their operations in ways that make sense for all kinds of reasons,” she concludes triumphantly. “A good jobs strategy will let them reward their employees without hurting their customers or their bottom line.”

Originally published on BenefitsPro.com
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