The best strategy to achieve business success? It’s really so simple…and, yes, so difficult
Many years ago, Southwest Airlines’ then chairman and CEO, Herb Keller, was asked to explain why Southwest is the most profitable of the ten largest airlines and has a cap value greater than the other nine airlines combined. He replied, “We take great care of our people, they take great care of our customers, and our customers take great care of our shareholders.” I was reminded of that statement as I began to read this book. Although Zeynep Ton focuses much of her attention on four companies (Costco, Mercadona, QuikTrip, and Trader Vic’s), she explains how others such as Southwest and Zara have also used a good jobs strategy to achieve and then sustain high profitability while continuing to be ranked each year among companies that are the most highly admired and the next to work for. According to Ton, more than ten years research leaves no doubt about this reality: “Great performance, whether in customer service or the quality of manufacturing, requires operational excellence. Operational excellence requires a great operational design and great people to carry it out. Neither can make up for the lack of the other.”
However different companies in service industries may be in most respects, Ton has identified what those among them that have a good jobs strategy share in common. She calls it the “Virtuous Cycle of Retailing” which has four interdependent, mutually supportive components: High Labor Budgets > Good Quality and Quantity of Labor > Good Operational Execution > High Store Sales and Profits > High Labor Budgets > etc. It is important to note that, for those who follow the good jobs strategy, labor costs are in fact an [begin italics] investment [end investment] that — as the cycle suggests — results in hiring better people who, in turn, run more efficient and more productive operations that, in turn, generate high store sales and profits, and that makes hiring better people not only an investment but a very smart investment.
Consider Walmart and Costco. The Walmart mantra is something like this: “We need to run a really efficient operation because customers come to us for low prices.” The choice is clear: Improving jobs would mean either that Walmart would make less money or that customers would have to pay more. Wrong. “The assumed trade-off between low prices and good jobs is a fallacy. There is, in fact, a good jobs strategy, even in low-cost retail, that combines high investment in employees with a set of operational decisions that deliver value to employees, customers, and investors.” Over a ten-year period, Costco’s index share price tripled Walmart’s.
Ton shares the nine principles of Mercadona’s Total Quality Model (TQM) to which the supermarket chain has been committed since 1993 when then president and CEO, Juan Roig, pressed for their adoption: Everyone is reliable, anything that does not provide value to customers is not done, every company is an assembly line, have a scientific mind, do it right the first time — zero defects, everything can be improved, the company has to prescribe and endorse only what is best, abide the law, and convince rather than conquer. Mercadona’s employees have the best benefits in the industry as do QuikTrip’s: “All receive a range of benefits, including a Christmas bonus, tuition reimbursement, free fountain drinks and coffee when on duty, and an employee assistance program to help with personal problems. All employees can benefit from the QuickTrip Cares Employee Disaster Fund, dedicated to helping employees who are affected by natural disasters or life-altering energies such as a house fire, an accident, or a sudden illness in the family.”
How do employees respond to a good jobs strategy? Here are two incidents that occurred at a Trader Vic’s store. Ready to check out, a customer realized that she had left her wallet home. The cashier paid and then said, “Just pay me back next time you’re here.” At another store, a customer was a dollar short and about to remove an item when the cashier reached into his pocket for the dollar. “Pay it forward and have a great day.”
Zeynep Ton offers an abundance of real-world support for the good jobs strategy, one that can be of substantial value to everyone involved, not only in services industries but in all organizations with a human community of stakeholders. “The good job strategy is difficult, but it is possible, profitable, and very much worth the effort.” My own opinion is that now and in years to come, this strategy — if executed properly — can achieve a decisive competitive advantage. Everything needed to make that happen is in this book.