I am so excited to be here to talk to you about work that is not glamorous, like cleaning bathrooms, shelving tomatoes, picking up trash or bathing the elderly.
During the pandemic, we called the workers who do this work “essential” because our world literally stops without them. Remember how we used to clap for them? You know, we've been talking a lot about AI robots, but this work is also unlikely to be automated. So these jobs are here to stay.
But a lot of people can do this work. So the wages that are set by the market are low. In fact, market pay is often unlivable pay. And tens of millions of essential workers live in a vicious cycle of poverty and lack dignity, which also hurts their companies.
Take Janet, a full-time hourly manager at a retail chain. Even as a manager, her low income didn't pay the bills for her and her son, so she had to have a second job. But she couldn't hold on to her second job because her work schedule changed all the time. One day she might work from 5 pm to 9 pm. The next morning, her shift might start at 5 am. Just imagine her life and imagine how little time she had with her son. "My life is always in a turmoil," Janet told me. She couldn't sleep. Amazingly, though, she still cared so much about doing a good job at work. But even there, she failed in front of her customers all the time. One day she said to me customers were yelling at her because the checkout line was too long. Some walked off, leaving their full baskets. The line was too long because there weren't enough workers at the store. And so many of the workers who were there were new, so they were slow and made a lot of mistakes. They put the wrong product on the wrong shelf or left expired milk in the fridge. When customers caught mistakes at the checkout, cashiers had to call Janet for help every time because they weren't trusted to adjust prices or even solve the smallest problems. Controls like that drove people crazy and wasted everyone's time. Janet begged for more staff, but her store's poor performance meant even a lower labor budget, which meant more mistakes and higher turnover. So she was always starting from square one rehiring, retraining, more firefighting.
You know, these dynamics are so common in labor-intensive services like retail stores, restaurants, call centers, nursing homes, hotels, that it seems like it's the only way for companies to keep their costs down. But it's not. You know, it's true, Janet’s company isn’t spending the money on labor, but they are spending the money -- on rehiring, retraining, on lost sales from long lines, empty shelves and poor service. On all the wasted products and wasted time.
Now I'm an operations management professor at MIT. We can't stand waste or inefficiency in operations. So that's the reason that I began researching service operations 25 years ago. But then when I met hardworking people like Janet who weren't making it, their struggles got to my heart. Especially as an immigrant who believes in the American Dream. So figuring out how to improve company performance and jobs became my work mission.
Now luckily, some companies have already figured this out. So Jim Sinegal, Costco’s cofounder and my business hero, visits my class. My MBA students are always so curious. They say, how can Costco, the world's third-largest retailer, afford to pay its workers so much more than other retailers and provide its customers the lowest prices? Here is how much Costco pays compared to other retailers. Huge difference. And Jim's answer is always the same. He says, "Paying your fellow workers well isn't altruism. It's good business." Costco's employee turnover is a fraction of the retail average... eight percent versus 60 percent. And its 20-year stock performance is so much higher than other retailers or S and P 500.
You might say, yeah, but Costco is an exception, Jim Sinegal is brave and brilliant, and that's the only reason they can keep their costs low and wages high. But it's not just Costco. Others, like Mercadona, Spain's largest supermarket chain; QuikTrip, a convenience store chain with gas stations, have also turned what's typically considered low-wage, high-turnover jobs into good jobs. Now these companies all pay their workers more because absence of sufficient pay guarantees high employee turnover. But pay alone is not going to make Janet's job a good one. And if all Janet's company did was to pay workers more without raising their productivity, then that would mean either higher prices or lower profits. Higher pay requires higher productivity. And higher productivity requires better work.
Here is how work at Janet's store would be different if her store operated more like Costco or QuikTrip or Mercadona. Everyone's priority would be the customer. So when there's a long line at the checkout, someone shelving merchandise would rush over to open a cash register because they would be cross-trained. When there are problems, experienced cashiers would be trusted to solve them quickly. No need to call Janet for help. They would also work fast, not just because they have expertise, but because corporate would do everything it can to simplify their work. Janet's store would also operate with slack, meaning having enough staff to take care of the customer, minimize mistakes, and do improvement. But operating with slack wouldn't work if there are slackers. Right? So the standards would be high, and with turnover low, Janet would have time to develop her team and improve performance.
Now if you think about the work at the store, it's still not glamorous. And Janet would still go home physically exhausted -- but not defeated. She would feel valued, and she would take pride in creating a lot of value.
So what makes a job a good one, both for workers and companies is not this or that thing, but it's a system. It's a system with two interdependent elements. One is investment in people: pay, schedules, career paths, standards. The other is work that's productive and motivating with simplification, empowerment, cross-training and operating with slack. I want to make this system, which I call the good job system, the norm, not the exception.
So to do that, I started a nonprofit called the Good Jobs Institute. And I've been working with my former MBA students, and together we have now worked with more than 30 companies whose leaders wanted to adopt this system to win with their customers. And we have seen small and large companies in different industries do it. A huge part of their success was their leaders' ability to imagine the workings of their own good-job system, and have the courage to adopt it.
Let me give you an example. In 2017, John Furner became the CEO of Sam’s Club, which is Walmart's membership-based model that competes with Costco. Now, at the time, Sam’s Club was struggling and way behind Costco in terms of labor productivity, member satisfaction, sales, employee turnover. John was Sam’s Club’s 14th CEO in 34 years. Imagine the performance pressure, right, to show results in a short amount of time. One of the earliest changes that John wanted to make was to raise pay five to seven dollars an hour from a basis of 15 dollars an hour, for workers who cut meat, who worked in bakery, who led teams. But John got pushback. HR said, "Don't do it. Last time we raised pay, it didn't reduce turnover." Finance said, "Don't do it. It's not in the budget." There was no way for John to be able to prove with numbers that higher pay and higher pay alone, without the rest of the system would pay off. But he was certain that Sam’s Club couldn’t be a great company if they didn’t raise pay. You see, to be loved by their customers, their members, they had to have a motivated, capable team that can set up for success. That wasn't possible without reducing turnover and reducing turnover wasn't possible without raising pay, because people were leaving for jobs that paid a couple more dollars an hour.
So just like Jim Sinegal, John could connect the dots between pay, turnover, productive work and competitiveness. So he and his team took a leap of faith. They raised pay, and they did the hard, bottom-up work to improve productivity and jobs. When they announced the first pay raises, some employees cried. You know, for workers like Janet, a couple more dollars an hour is the difference between working one or two jobs. It's the difference between getting enough sleep or not. Having a stable schedule is the difference between spending time with your son or not.
And for Sam’s Club, within the first two years, labor productivity, measured as units sold per hour, increased 16 percent. Employee turnover dropped 25 percent for hourly workers, even more for managers. Sales increased 25 percent without opening new stores. This type of performance improvement fueled more investment in people and record membership growth. The once-struggling chain is now a growth engine for its parent company, Walmart, which too is on a good-jobs journey. And John Furner got promoted to be the CEO of Walmart USA.
I'm talking a lot about retail, but it's not just retail. At Good Jobs Institute, we've seen similar results, higher productivity, lower turnover, more love from customers and higher sales at restaurants, call centers, even at a pest control company. The success of these courageous early adopters, I hope, will make it a lot easier for others to make a bet on their people.
You know, when we think about high-performance organizations, our first instinct is often to fix the people right? But it turns out what really needs fixing is their work and their pay. The problem was never Janet. The problem was the system that Janet was stuck in. And if we see jobs like hers not as dead-end jobs, but as good jobs that can provide dignity, respect and a decent living, we would have more engaged and productive workers. We would have more competitive companies, a stronger economy, and a growing, rather than a shrinking, middle class. Tens of millions of essential workers would have hope instead of desperation, and that will be a blessing for all of us.
Thank you.
(Applause)
