The “Good Jobs” Strategy: Developing Employees & Strengthening Your Bottom Line


Posted In: Workforce Insight, Workforce Research

Jun • 21 • 2017


Companies looking to lower their costs often begin with labor — especially companies with a high number of entry-level employees. For many retailers and service providers, such as restaurants and hospitals, labor comprises 10 to 35 percent of the company’s costs. That’s a big share and, unlike fixed costs like rent and inventory, it’s easier for businesses to cut.


Common cost-reduction strategies include cutting staff hours, implementing just-in-time scheduling, and reserving education opportunities for only those in leadership positions. But those savings are usually offset by increased spending elsewhere, according to Zeynep Ton, an adjunct associate professor at M.I.T’s Sloan School of Management. Such cuts tend to lead to more spending on recruitment, reduced customer satisfaction, and even increases in costs associated with human error.


In fact, Ton’s research, which she presented last year in her book The Good Jobs Strategy: How the Smartest Companies Invest in Employees to Lower Costs and Boost Profits, suggests that better savings can result from investing more in entry-level employees rather than cutting costs.


Investing in Employee Ownership


As a researcher studying retail operations, Ton began to notice a trend. Although many companies cite low pay and minimal benefits as necessary to keep prices reasonable, many of the most successful retailers actually had the opposite approach. Companies such as Trader Joe’s, Costco, and Spanish supermarket Mercadona not only had some of the highest wages in the industry, they also had the lowest prices and highest customer satisfaction.


“They have demonstrated that, even in the lowest price segment of retail, bad jobs are not a cost-driven necessity but a choice,” Ton wrote in Harvard Business Review. And that choice can have far-reaching impact on a company.


To keep labor costs down, many companies require managers to play games with schedules: cutting hours, forcing staff to work on call, and releasing schedules at the last minute (which means employees can never plan ahead for their week). The result can be an antagonistic relationship between employer and employee — and increased turnover as employees leave in search of better jobs.


These consequences have long been considered necessary evils for many companies that rely on low-wage employees. But employee dissatisfaction can have a huge impact on how customers perceive a company. Not only can apathetic employees be a turnoff to customers, customers are paying more attention to how businesses operate. Advocacy organizations like Conscious Capitalism are uniting consumers who want to spend their money at companies that treat their employees well.


Data is accumulating that demonstrates that when companies invest in benefits, consistent schedules, and good training, employees are more motivated, take more pride in their work, and have more ownership over their responsibilities.


For example, companies that pay their employees better can also spend significantly less in employee turnover costs. IKEA CFO Rob Olson linked wage increases to a 5 percent reduction in U.S. staff turnover in 2015, which came with a corresponding drop in the company’s recruitment costs.


More on this subject: Caring for the Frontline is Front of Mind for Partners HealthCare


Investing in Employee Wellness


Creating good jobs isn’t just about offering a laundry list of Silicon Valley perks like nap pods and a gourmet cafeteria. Just take a look at Northeast supermarket chain Wegmans, which has spent 20 years on Fortune’s 100 Best Companies to Work For List — making #2 in 2017. Along with offering tuition reimbursement, Wegmans provides healthcare to part-time employees and uses an online scheduling system to give employees more control over their schedules.


They also have a Store Wellness Champion at each location to help employees make healthy changes. A recent study by RAND Corporation found that wellness programs have a net positive ROI; particularly when focused on short-term goals like disease reduction, they can reduce absenteeism.


More on this subject: Lumina Foundation’s ROI Study Proves the Value of Your Tuition Assistance Investment


Investing in Employee Training


Job training is critical to the success of employees — and to the business. Well-trained employees are more confident, more productive, and make fewer costly mistakes. They are more empowered and knowledgeable, resulting in a better customer service experience.


Ton saw this exact correlation in the study she and her colleague Ananth Raman of Harvard Business School conducted on bookstore chain Borders. When looking at stores that used the same information technology and offered the same incentives to employees, they found a huge variation in performance. The best store in the Borders chain performed 43 times better than the worst store.


The correlation? Stores in which employees had less training and greater workloads — and which unsurprisingly saw higher turnover — were the worst performers in the chain.


The most successful companies are investing not only in on-the-job training to ensure employees can handle their current roles, but are also investing in degree programs and other long-term strategies to help employees prepare for a productive future. All but six of the top 50 companies on Fortune’s’ Best Companies to Work For list offer tuition reimbursement.


More on this subject: 3 Ways to Encourage Your Employees to Earn a College Degree


The Good Jobs Strategy


Investing in making entry-level jobs good jobs stabilizes churn and helps create a culture of ownership and growth within your organization. Wages alone can’t be considered in isolation from the effects of well-trained, highly motivated employees on other areas of business. After all, a company can only truly be as successful as the people who make up the organization.


Want to learn more? SNHU and College for America help companies educate and advance employees at all levels of the org chart. Get in touch here.