The Good Jobs Strategy: How the smartest companies invest in employees to lower costs and boost profits; Zara’s investment in staff is crucial to this speed, together with its ability to collect information from employees on what is popular

January 29, 2014 4:07 pm

‘The Good Jobs Strategy’ by Zeynep Ton

Review by Gill Plimmer

The Good Jobs Strategy: How the smartest companies invest in employees to lower costs and boost profits, by Zeynep Ton, New Harvest $25/£8.99

When Madonna was on tour in Spain a few years ago, teenage girls turned up at her final performance wearing the very outfit she had worn for her first show. They had bought it from Zara, the Spanish retailer.

While most fashion retailers take months to introduce new product lines, Zara’s supply chain can design and deliver new clothes to its 1,500 stores in more than 70 countries within days.

In her book The Good Jobs Strategy, Zeynep Ton argues that Zara’s investment in staff is crucial to this speed, together with its ability to collect information from employees on what is popular. Zara’s shop assistants, for example, tell managers if customers are requesting a long-sleeved version of a particular shirt.

The question that Ton, an academic at MIT Sloan, set out to answer is how do Zara and other successful retailers treat employees better than rivals, yet still deliver healthy profits and shareholder returns? Her work focuses on low-cost retailers because they compete on price and because it is often argued that the only way companies can keep costs down and prices low is to skimp on labour costs – whether through low wages, minimal benefits or underinvesting in training.

As the title implies, The Good Jobs Strategy argues that this is not the case. The author focuses on four low-cost retailers in the US that treat employees well: Costco, the discount retailer, Trader Joe’s, a food store, Mercadona, the Spanish grocer, and QuikTrip, a petrol retailer. It contrasts these with low-paying, “bad” employers such as Walmart

, the world’s largest private sector employer.

Salespeople and cashiers are also the two largest occupations in the US, even though a typical retail worker earns wages beneath the poverty level. In 2011, staff at Walmart received $585m in public assistance.

Moreover, Ton points to studies that have shown that when Walmart has opened a new store, wages have tended to fall in surrounding shops.

If you had invested $100 in Walmart 10 years ago your money would have grown 40 per cent; invest in a company with a “good jobs strategy” such as Costco and your money would have tripled.

While there are likely to be many reasons for this difference, Ton argues that the decision to give employees low-paid jobs for which they are badly trained ultimately costs companies in lost performance – such as empty shelves, or stock recorded as being on the premises but impossible to find.

The book identifies some crucial practices that have helped model companies transform their investment in staff into higher profits. These include cross-training employees, offering secure contracts and paying them properly. While Walmart deals with erratic customer traffic by hiring staff at the last minute on hourly rates, Costco shifts employees between jobs and occasionally offers staff unpaid time off work. If they do not take up the offer, Costco takes the financial hit. However, staff often do opt for the unpaid leave because they have regular pay packages and benefits.

Another practice is to give workers more power. Although window displays in Zara are modelled in Spain, shop assistants can suggest local improvements, sending snapshots back to head office for approval.

But Ton’s advice is not limited to employment strategies. She also found that successful retailers offered a smaller range of products and fewer promotions. This helped retailers buy at bigger discounts, avoid confusing customers and forecast sales better.

Critics would argue that companies such as Walmart are successful, profitmaking machines, and that without surveying all retailers it is impossible to tell whether combining good employment conditions and standardisation of products really delivers higher profits growth overall or just at a few key companies. But at a time when the complexity of workers’ jobs is increasing and labour force investment declining, this is a methodically researched riposte to cutting staff and wages.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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