Here’s a paradox of the modern corporation: either you can provide low prices, or you can provide high wages. Conventional wisdom says you can’t do both. But can you?
To make this case, let’s pick on two obvious examples: the discount store and the hospital.
The big box retailer that sells everything you can imagine is a classic example of “low prices and low wages.” We’re all used to the idea that the jobs here barely pay the minimum wage, but the stuff for sale is stunningly affordable. The reason is economic: the company is trying to appeal to the masses, so they drive costs down, aggressively push their vendors to get better deals, and cut corners everywhere. Those savings get passed along to the customer. End result: Low prices, low wages
Now consider a completely different environment: the modern hospital. Whereas a discount store is mostly known for low wage employees, medical care facilities are filled with highly-skilled, extensively trained professionals. Doctors, nurses, medical technicians, hospital administrators, social workers, and other college-educated individuals are busy saving lives. That work is valuable, meaning higher salaries. And as everyone can tell you, it’s part of the reason that healthcare is not cheap for the consumer.
This paradox is covered in a New York Times opinion piece called The Good Jobs Strategy, which is about a book by the same name and it’s author, professor Zeynep Ton:
As she took a closer look [at retail giants], Ton says, she realized that the problem was that these companies viewed their employees “as a cost that they tried to minimize.” Workers were not just poorly paid, but poorly trained. They often didn’t know their schedule until the last moment. Morale was low and turnover was high. Customer service was largely nonexistent.
Yet when she asked executives at these companies why they put up with this pattern, she was told that the only way they could guarantee low prices was to operate with employees who were paid as little as possible, because labor was such a big part of their overhead. The problems that resulted were an unavoidable by-product of a low-price business model.
The article goes on to show that this isn’t necessarily the case in reviewing a gas station/convenience store that is bucking the trend:
QuikTrip, an $11 billion company with 722 stores, is a prime example of what Ton means by “human-centered operations strategies.” Paying employees middle-class wages allows the company to get the most out of them. Employees are cross-trained so they can do different jobs. They can solve problems by themselves. They make merchandising decisions for their own stores. The ultimate result of the higher wages QuikTrip pays is that costs everywhere else in the operation go down. At QuikTrip, says Ton, products don’t remain in the back room, and in-store promotions always take place, as they’re supposed to.
The answer to this riddle is what we’ve been saying here on The Methodology Blog for ages: employees are not an expense—they’re an asset. If you’re going to bother to have people working for your company, the best thing you can do is find ways to engage them so they want to stay, they want to innovate, and they want to give honest feedback.
Unfortunately too many companies see their team members as just a conduit between their customers and their profit margins. In order to change this culture, leaders must recognize that what made them able to succeed in the first place was genuine passion. Creating employment structures that are filled with policies, politics, and arbitrary rules will only demoralize people. You won’t create the culture needed to do amazing work.
You can have low prices and high wages. The secret is employee engagement. But the recipe isn’t easy. Reach out to our business improvement consulting team to seek advice.