Better jobs mean bigger profits

Frank Dillon reviews the HBR book “The Case for Good Jobs” by Zeynep Ton.

Many MBA students would be uncomfortable making a case for increasing pay if they couldn’t show – with the numbers all lined up on a spreadsheet – that higher wages would pay off financially for their businesses.

The effect of this thinking can be seen and heard in the real world: using data from all publicly traded firms in the US from 1992 to 2014, researchers found that when a CEO with an MBA takes over from one without that qualification, pay declines by six percent on average.

That’s one of the interesting observations of Zeynep Ton is his book that makes the case that paying decent wages can increase rather than inhibit competitive advantage.

In this thoughtful and well researched book, the author presents a convincing argument for improving the lot of employees, including paying them more. Ton readily concedes, however, it’s an argument many business leaders don’t want to engage in.

In the minds of many managers, labour is too often viewed as a cost to be minimised. Lean and mean is what drives efficiency. The resulting low wages, poor benefits and unstable schedules, with few opportunities for success and growth – and the resulting operational mediocrity – are simply what one should expect in these industries, is a widespread belief.

Though most low paid employees work in the service sector, America’s manufacturing decline has shaped many people’s belief about investment people and about competitiveness in general. Even those business leaders who preach about equality and fairness, often baulk at the notion of paying more themselves, citing competition and investor pressure.

One CEO of a large manufacturing company the author interviewed – a company with a stated mission about caring for its employees – claimed that pay wasn’t as important as employees feeling engaged. As long as consumers wanted low prices, manufacturers would locate where wages were lowest.

As the author notes, he can eventually convince even the sceptics at the workshops he runs that investing in people, combined with good operational choices, can drive outside business performance – for others. They don’t see that working in their own firms, however.

False narratives, fear and lack of imagination are all at play here. There are also cultural reasons why leaders fear the good jobs philosophy. Many don’t see frontline positions as a critical driver of performance. This is especially the case  in manufacturing which is not viewed to be as important as design and marketing.

Gary Pisano and Willy Shah from Harvard Business School argue that this approach has hugely damaged the US economy. The US is losing the knowledge, skillsets and supplier infrastructure required to manufacture many leading edge products in industries such as electronics, pharmaceuticals and semiconductors. Because manufacturing has deep connections to product design and innovation, the US is losing its ability to design new products in some of those industries.

Ton maps a better way with a range of illustrative case studies. The key lesson here is the necessity to adopt a growth mindset. Companies need to change from a model of high staff turnover, poor operational execution and low productivity to a virtuous one of low staff turnover, excellent operational execution and high customer service.

While pay is a major focus of the book, Ton also looks at other ways jobs can be improved. Consider clinical laboratory firm Quest. It used to deliver test results to physicians by phone but after surveyed doctors, it found that they would rather get normal test results by fax.

Changing this reduced outbound calls by 16 per cent. Installing fax capability on employee computers also reduced the hassle of workers having to leave their desks. It then reduced inbound calls by improving its online portal to show doctors the status of their shipments and sent results to doctors’ cell phones. The result was higher labour productivity and better customer service as well as eliminating drudgery for its workers, thereby reducing staff turnover.

On an encouraging note, Ton says that In workshop after workshop, he encounters people from all functions of the organisation – logistics, marketing, finance, product design etc. – who are genuinely upset to learn how much trouble they sometimes make for their frontline employees. “They are genuinely anxious to begin a journey to become customer and frontline centric … if only their leaders will allow them.”

The Case for Good Jobs by Zeynep Ton, Harvard Business Review Press.