Costco, Trader Joe’s, QuikTrip and the “good jobs strategy”

zton_book-257x300As the issue of income inequality takes center stage in Washington, creating risks to the reputations of some of America’s biggest employers, such as Walmart and McDonald’s, Zeynep Ton’s new book, The Good Jobs Strategy, could not be more timely.

Ton, who teaches at MIT’s business school, argues that smart companies invest in their employees, who provide superior service to customers, who become loyal, thus generating profits and shareholder returns. What’s more, she says, this strategy works in the brutally competitive, low margin retail industry, at such companies as Costco, Trader Joe’s, QuikTrip and the big Spanish retailer Mercadona.

I met Zeynep Ton last week at the Hitachi Foundation in Washington, and wrote about her book, and her ideas, today in Guardian Sustainable Business.

Here’s how my story begins:

About 46 million Americans, or 15% of the population, live below the poverty line, and about 10.4 million of them are the working poor. They bag groceries at Walmart or Target, take your order at McDonald’s or Burger King, care for the sick, the elderly or the young.

Conventional wisdom says that’s unavoidable: to stay competitive, keep prices low and maximize profits, companies, particularly in the retail and service industries, need to squeeze their workers. But in a provocative new book, The Good Jobs Strategy, author and teacher Zeynep Ton argues that the conventional wisdom is wrong. Instead, she says, smart companies invest in their employees, and they do so to lower costs and increase profits.

Of course, the idea that companies need to properly reward their key employees is hardly radical. That’s how business works on Wall Street and in Silicon Valley, where the competition for talent is fierce. But Ton, who teaches at the MIT Sloan School of Management, says that a good jobs strategy can also work in retail. In fact, she makes her case after a close study of four mass-market retailers who invest in their employees, keep costs low and deliver superior shareholder returns.

“It’s not the case that success comes from cutting labor costs,” Ton says. “Success can come from investing in people.” What’s more, she says, executives need to understand that that treating workers well “does not depend on charging customers more”.

You can read the rest here.

Regular readers will not be surprised to hear that I’m inclined to agree with Ton. Ten years ago, in my own book, Faith and Fortune, I reported on companies like Southwest Airlines, Starbucks and UPS that pursue their own version of a “good jobs strategy.” To her credit, Ton has shown that the strategy works in retail, and that it can actually help drive prices lower–a potentially valuable lesson for companies like Walmart and McDonald’s.

Zeynep Ton

Zeynep Ton

That said, her book raises a question that is hard, at least for me, to answer: If the good jobs strategy is so good, why don’t more companies embrace it? For that matter, why haven’t those companies that treat their employees well trounced their competitors? In theory, the companies that practice a “good jobs strategy” should be able to attract the best people, deliver the best customer service and force their rivals to copy them or suffer. That’s the way markets are supposed to work.

I put this question to Ton and she offered two answers. First, markets are imperfect. Second, the “good jobs strategy” is hard to execute because it requires redesigning workplaces, providing lots of training, finding the right balance between standardizing tasks and empowering employees, and so forth. Maybe. But I suspect there are other reasons why the “good jobs strategy” has not swept across America. Your thoughts are most welcome.

Comments

  1. It’s tricky to use Costco and Trader Joe’s as examples of this. Costco does it by employing much fewer people than Walmart for a store chain of its size, and by having fewer items on inventory in larger packaged amounts. Trader Joe’s does it by limiting the selection of items to its own private label goods, after which it charges a mark-up – and even then, the US part of Trader Joe’s loses money right now.

  2. Marc Gunther says:

    That’s a great observation, thanks, Brett. Zeynep Top makes exactly this point in her book–she says that companies that pursue a “good jobs strategy” typically offer fewer choices, which makes the employees jobs better (fewer products to keep in stock, easier to become knowledgeable about what’s for sale). I think about Apple which sells, what, 30 or 40 products, at most, compared to Sony, which sells hundreds, if not thousands–and then think about the high quality of sales people in an Apple store. Maybe she (and you) are onto something.

  3. Jeff Weintraub says:

    Maybe businesses want to see more proof that it actually works. After all, to some, particularly those who are all about keeping overhead as low as possible, it’s probably counter-intuitive. A chicken-and-egg dilemma.

  4. Marc,

    Have you considered who their customer base is for goodness sakes? Would you have an article that ponders the question as to why Morton’s pays their employees more than KFC?

    Stuart

    • I don’t buy the customer base argument. That works for companies like Patagonia and Starbucks, but not for Costco or Quiktrip. It also strikes me as an excuse for not doing exactly what Ms Ton argues should be done.
      No, to me, companies are stuck in the trap of arguing we pay employees as little as possible because that’s how we’ve done it. So, we’re talking about culture change and thinking outside the box to get companies to change.

    • Marc Gunther says:

      I don’t think the customer base is the issue here. QuikTrip customers, I presume, are no different from those at 7-Eleven. Southwest Airlines serves more middle-income people than, say, American or United, I’d guess, and yet Southwest provides far superior service (in the air, on the ground and online) and, at least until fairly recently, it did so with lower prices.

      I’m not suggesting that it would be easy for Walmart or McDonald’s to raise wages and benefits. They have to compete on price with Dollar Store and Burger King. (And their employees are, in effect, competing with automated ordering and checkout.) But Zeynep Ton’s book argues implicitly that they ought to seriously consider moving towards a “good jobs strategy.”

  5. I spent a year working undercover at Trader Joe’s, while researching my book “Build a Brand Like Trader Joe’s”. In that time, I came to believe that Ton’s theory (which has become a real internet meme) applied in Trader Joe’s case. I also came to doubt that the company’s current management really understands its significance. In TJ’s case, it’s worth noting that the “extra” money it spends on front line staff effectively mean that it doesn’t have to advertise.

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