How to Build a Business on Good Jobs

A growing number of service companies that have long offered frontline workers low pay, few benefits, unpredictable schedules, and dead-end careers are abandoning or at least questioning their model. As discussed in part one of this article, “The Case for Good Jobs,” financial, competitive, and moral reasons are prompting them to seek an alternative approach — one that gives frontline employees a living wage, adequate training, predictable schedules, and career opportunities; one in which everyone in the company works to help those employees be highly productive and deliver great products and outstanding service. I call this the Good Jobs Strategy, or GJS. Making the transition to it is daunting but achievable. In what follows I will explore how to get from here to there. Leaders should recognize several things at the outset. First, you must be patient. Moving to a good jobs system will most likely take years, even if your organization is small. Mercadona, Spain’s largest supermarket chain, began to make the transition in 1993, when it had roughly 150 stores, and it took about three years for its financial performance to improve significantly. Some types of performance might temporarily decline. Costs might go up, owing to higher wages and bigger investments in training. Sales might fall as promotions are reduced. Turnover might increase. Some headquarters employees might leave because they don’t like the loss of control, are uncomfortable learning from frontline staff, or think their expertise has been devalued. Some frontline employees might not like the higher standards and quit, while others might prove incapable of meeting the new standards and need to be dismissed. (When Quest Diagnostics, a provider of medical diagnostic services, adopted a stricter absenteeism policy and set higher performance expectations at its call centers, turnover increased for a while but then fell below previous levels.) Trusting the process is crucial. So is learning from transformations to similar systems, such as the Toyota Production System (TPS). Here are some of the most important steps: Align on the Goal and Direction As in any transformation, it is important to (1) create a compelling vision around customers and employees that appeals to both heads and hearts; (2) form a centralized implementation team — sponsored by the CEO or the COO and including executives, field managers, and representatives of home office functions that affect frontline work — with the power, expertise, credibility, and leadership to create an implementation strategy; and (3) maintain constant and honest communication about the transformation, through town halls, short videos, memos, and so on. Elect a transition team. In 2014, when the executive team at Mud Bay, a chain of 44 pet stores in the northwestern United States, decided to implement the GJS, co-CEO Lars Wulff launched eight weeks of small group discussions for 67 store managers and headquarters staffers, during which they discussed the GJS and how Mud Bay could benefit from it. The company then charged a team of six store managers elected by their peers, six home-office staffers elected by their peers, three district managers, and five top executives with creating a vision and strategy for the transformation. This up-front effort generated companywide buy-in. Store employees were excited enough to talk about the transformation with customers, who then felt even better about shopping at the chain. Hold workshops. Educating your organization about the GJS ahead of time through workshops with store managers, district and regional managers, headquarters functions, and senior leaders is important for several reasons. Workshops help the functions, some of which have never worked with one another, to have honest discussions and start breaking out of their silos. I have run workshops in which store leaders felt comfortable telling headquarters functions how much trouble their decisions had caused. Workshops also help the functions understand how and why the GJS works as a system and what their role in it is. I often divide participants into five groups representing investment in people and the four operational choices of the GJS and ask each group what needs to change within that element to create a better customer and employee experience and what will be required from the other groups. This helps participants immediately grasp the dependencies. Finally, workshops will help you identify and address objections early on. For example, many retailers already feel desperate about slides in traffic. So marketing or finance’s response to the principle of focusing and simplifying might be: “Are you crazy? We’re getting killed. We need to sell more products, run more promotions, stay open longer.” That needs to be talked through. Promise no layoffs. Some changes in a good jobs transformation may temporarily decrease revenue, and some functions might wonder about the effects on their compensation, while people at any level might fear for their jobs. I recently asked a store employee how she thought the backroom replenishment process could be streamlined. She said she wouldn’t want it to be, because it might mean she could lose her job. All such objections need to be heard and addressed. One of the best practices we have learned from TPS implementations is to make a public commitment that apart from seasonal workers, no one will be laid off because of the transformation. Start Small and Learn What Works In multiunit service organizations, the desire to show results quickly and the habit of top-down decision making often tempt companies to implement one big top-down change at a time. That urge should be resisted. Work up from the front lines. Given that the GJS is a complex system in which many things, big and small, will change, and given uncertainty around the order of changes, top-down implementation is too slow, expensive, and tone-deaf to unit-level realities. If the front lines aren’t involved in creating the initiative, their buy-in and commitment will be low. The transformation may be largely planned at headquarters, but it should be executed from the front lines up. Not every company is willing to do this. When I suggested it to the chief people officer at a big-box retailer, she replied, “We typically don’t ask them; we tell them.” You can’t implement the GJS that way. Prototype and scale up. An approach that has worked well in TPS transformations is to implement the new system in one unit or a few, learn and adjust, and then scale up. Prototyping lets the centralized team discover how to break down functional silos and collaborate. This approach also builds momentum and converts cynics, because it’s easier and faster to show success. Choosing units with strong leaders who are excited about the transformation and with average performance — so that meaningful improvements will be visible within a few months — makes success more likely. Lessons can be scaled up more easily if the prototype units are of average or typical size, location, and format. Choosing units reasonably close to headquarters lets the centralized team visit regularly. Determine What to Change First The good jobs scorecard discussed in part one of this article might tell you that your company needs to change and highlight the biggest gaps that need to be closed, but it doesn’t specify what to change. Here’s how to figure that out. Diagnose yourself. This will help you identify priorities. Which GJS elements do you already use? Where could you improve? You will probably find many things to change, such as: how stores recruit, train, pay, and empower associates whether headquarters functions take frontline work into account when making decisions and coordinating with one another whether the relationship between headquarters and the stores is a two-way street so that, for example, store processes are standardized with input from frontline workers and headquarters has a mechanism for hearing ideas from the field You can’t overhaul everything at once, and revamping some elements of your operating model will be hard. That said, some changes will have good results only if complemented with others. Getting functions to coordinate decisions may require new incentives, leadership, and organizational structures. Higher pay won’t make your employees more productive or engaged if their work remains unstable. But it will inspire more of them to stay longer and become better at what they do, which will help you stabilize operations. Start by providing stability. At Quest’s call centers, the GJS implementation began with this step. The centers suffered from high turnover and a 12% absentee rate. Supervisors spent most of their time fielding calls that inexperienced reps couldn’t handle, and customers were frustrated. Conversations with reps and supervisors revealed that the main reasons for the turnover had to do with pay and career paths — basic employee needs. The work was more complicated than that at a typical call center, yet the pay was about the same, and it didn’t rise as employees acquired new skills. To address these issues, Quest implemented step-based pay and a higher starting wage and provided clear career paths. To subsidize the higher wages, it found ways to eliminate waste. Certain services provided by phone could be offered in other ways, ones that both lowered costs and increased customer satisfaction. For example, many physicians preferred receiving normal test results by fax rather than by phone. Many patient calls concerned location, hours, or scheduling — things that don’t require a rep’s expertise — so Quest made that information more accessible online. By simplifying and focusing on the most important value it offered customers — important medical information as quickly and accurately as possible — Quest cut costs and improved service. Much more had to follow, and did, but the later steps probably wouldn’t have been possible if employees hadn’t first been given good reasons to stay with the company long enough to get really good at helping customers. Quest’s tack of stabilizing first is a good model. Until work processes, workloads, turnover, and absenteeism have been addressed, companies will find it hard to implement changes such as cross-training, creating high expectations, and empowering employees to make decisions. Look for little opportunities. Quest sought other small but meaningful ways to improve work, engagement, and customer service. One rep came up with an idea dubbed the “Spanish whisper.” Although a caller could select English or Spanish, the bilingual rep who answered did not know which had been chosen and would lose about 20 seconds finding out. Working with a prototype team, the centralized team programmed the phones so that when a Spanish-speaking caller was on the line, the word “Spanish” was whispered into the rep’s headset before he or she picked up the call. In addition to its direct usefulness, this small change helped break down silos, because several functions had to work together to implement it. (Another lesson from Toyota is that solving small problems helps formerly isolated departments learn to coordinate and collaborate.) It also signaled to reps that their opinions now counted. Making many small improvements rather than a few big changes is also powerful: Researchers have found that the sum of many small improvements often has a large impact and that small wins help sustain momentum. Big changes must come eventually. But they are more likely to succeed if a foundation has been laid. Scale, Adapt, and Continuously Improve Executives of chains may have some problems with the prototype approach. They may be uncomfortable devoting many centralized resources to a few prototype units for several months. And relying on just a few units to drive change in hundreds or thousands of others may not feel right. If the company is under pressure to improve performance, executives will want to implement companywide change as soon as possible. You can address these concerns in three ways: Identify changes that have few dependencies and can work in isolation, such as daily huddles, a better checkout process, a better cleaning process, and better recruiting. Empower units other than the prototypes to experiment with improvements and share results with the good jobs team. You can then create the first versions of new standards using store input. This approach can produce improvements across the chain in a few months and start changing the culture to one that involves the frontlines. Apply some of what the prototypes learned across the organization while the pilot efforts are still under way. For example, once headquarters learns from a few prototype units how to reduce workload variability (say, by reducing delivery windows or avoiding last-minute changes to promotions or deliveries), you can apply the new methods companywide. Simplifying work as Quest did can also enable you to increase pay or benefits across the chain without overly hurting short-term performance. Establish a channel for sharing successes with other units so that they will be eager to make the same changes. When Quest’s prototype teams presented their results to other teams, supervisors lined up to try the new approach. Depending on the size of a prototype unit and the level of initial stability, implementing all elements of the GJS can take more than six months. Once the elements of the system are working well together, the centralized team can start rolling them out more widely. It should keep in mind what we have learned from TPS implementations: Don’t impose the same playbook on other units; rather, involve them in implementation and allow them to adjust and adapt it. This may take longer, but it will ensure buy-in and get better results. Good jobs companies do not standardize processes once and expect conformity. They involve their employees in continuously improving processes. The key to both scaling and improving is having a centralized process owner and a clear process for hearing frontline ideas, experimenting with them, and rolling them out across the network in a way that ensures buy-in. The transformation is quite an undertaking — one that requires totally committed leadership and disciplined execution. But it is worth the effort. The Payoff Good jobs transformations have worked well — for employees, customers, companies, and investors — in a variety of settings. In the three years preceding the 2014 launch of its good jobs transformations, Mud Bay’s same-store sales grew at an average annual rate of 6.5%. From 2014 to 2016 same-store sales growth averaged 11.0%, and the company’s overall sales grew much faster than the industry’s as a whole. The average hourly wage of Mud Bay’s store employees, including managers, was 18% higher in 2016 than in 2013, and employee turnover in 2016 was 33% — down from nearly 45% three years earlier. Customer satisfaction is now at its highest level ever: Stores get love letters from customers and seldom receive fewer than five stars on Yelp (the largest 100 retailers average 3.2 stars). In 2013 just 65% of store employees worked 30 or more hours a week. The 2017 figure thus far is 82%. Quest started its good jobs transformation in July 2015. Since then it has seen a 20% reduction in its call-transfer rate (calls that must be passed on to someone else because the first rep can’t field the question) and a 40% improvement in how quickly calls are answered. By March 2017 turnover had dropped by 53%, absenteeism by 66%. Within eight months of implementation reps had submitted 1,556 ideas for improvement, 1,001 of which have been implemented. Of $2 million in savings, $1.2 million came from those ideas. . . . Better jobs make for a better society. Employees do higher-quality work when they are knowledgeable and empowered, when they have sufficient resources, and when they and the work they do are respected. Customers — which means all of us — are treated better and are more likely to come away satisfied. In the past century we saw that higher pay and better working conditions in manufacturing contributed to a bigger middle class and a stronger economy. Now it’s the service sector’s turn. An economy with more good jobs is neither inevitable nor utopian. It is a choice we can make. The Good Jobs Strategy has proved that the trade-off between pay and prices can be broken. The CEOs of service companies have a unique opportunity to generate more value for their investors and customers while creating meaningful work for millions of people — work that will allow them to escape poverty and join the middle class. That’s a privilege and a responsibility. The Big Idea

How to Build a Business on Good Jobs

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