Training the Future

Ford assembly line, 1913.
(Photo credit: Wikipedia)

The lack of United States-based manufacturing and construction jobs in today's economy is well documented and well lamented.  For some time there has been an exodus of manufacturing to other countries.  For five years, there has been woefully little construction going on in most parts of the country.

This has had serious economic and employment implications.  A whole class of middle-class workers have had to rethink their futures, and the futures of their children.  Following in Dad's footsteps at the neighborhood factory no longer seems as feasible as it once did.  Or as secure.  Even in those increasingly rare situations in which the neighborhood factory is still there.

The good news is there seem to be some glimmerings of positive change in both the construction and manufacturing industries. No one is going to party like it's 2007, but bit by bit, there seems to be a changing of the tides.  Some of these important jobs are creeping back into our economy.

But now there is a new problem.  Just as manufacturers are emerging from a shortage of jobs, they are facing another shortage; workers with the skills and abilities to succeed.  Manufacturing has changed.  There is a greater reliance on automation and a greater need for workers who are problem solvers and high tech operators versus cogs on the assembly line.  The skills and talents needed to succeed are greater than ever, requiring more practice and apprenticeship than ever.

Since there hasn't been much of a manufacturing industry for 5 to 10 years, there hasn't been much of an apprenticeship program.  Young people haven't had the opportunity to work along side experienced workers to learn their trade.  Add that to the fact that more and more manufacturing jobs rely less and less on physical labor and more on the worker's good judgement and ability to operate complicated, computerized equipment and you have jobs that take significant time and practice to master.  And few people practicing at the moment.

Companies are getting more help in training those qualified people they can find.  Community colleges, high schools and chambers of commerce are starting to cobble together training programs to meet the needs of 21st century companies.  Sometimes, the programs are tailored to the specific needs of a local industry or company.

The paradigm shift is dramatic and significant.  It's going to take some training to get past it.

Counter-intuitive in the counter business

Earlier this year, Wal-Mart did away with their people greeters, a hallmark of the stores for more than 30 years.  A Wal-Mart spokesperson said that the move was a way to rein in costs and prices.  While the company has said that the greeters have been reassigned to other roles, including serving people in high traffic areas within the stores, many analysts and former greeters seem skeptical that the jobs will remain for long. 

It is conventional wisdom that the key to success in retail is to work to keep your costs as low as possible and your revenues as high as possible.  The manifestation of that conventional wisdom is that many retail stores are populated with fewer and fewer poorly paid part time employees.  As Zeynep Ton states in her recent Harvard Business Review article, "The conventional wisdom is that many companies have no choice but to offer bad jobs—especially retailers whose business models entail competing on low prices. If retailers invest more in employees, customers will have to pay more, the assumption goes."

But in her research, Ton shows evidence that the truth is counter-intuitive.  In her study, she profiles four retailers that operate in the low-price arena.  Trader Joe's, QuikTrip, Costco, and Spanish supermarket chain Mercadona buck the trend.  All four companies pay their employees higher wages, provide them better training and have more of staff on the floor.  All four of these companies have higher labor costs than their competitors.  They also have higher employee loyalty.  That is to be expected.  What goes against the grain of conventional wisdom is that all four of these retail organizations is also more profitable than their competitors.  They enjoy more sales per employee and per equivalent store.

The advantage is pretty straight forward.  First, the profiled companies tended to keep employees longer.  So, in the long run, they spend less per employee hour on recruitment and training costs. 

On average, their employees were more knowledgeable and more experienced than the staff of competitors who focused on minimizing HR costs.  That means that there is more experienced help on the floor for customers.  The chances of a customer getting assistance that really helps answer their question or solve their problem goes way up.

Which leads to the second tangible benefit.  It is cheaper to get existing customers to make additional purchases than it is to attract new customers to make first time purchases.  By having experienced, knowledgeable staff on the floor, helping customers, Trader Joe's, QuikTrip, CostCo and Mercadona help customers find, and purchase, what they are looking for.  Customers actually end up purchasing more because the knowledgeable staff helps them find answers to their problems, helps them find what they are looking for, and makes recommendations for additional purchases.

Zeynep Ton's research seems to bear this out.  I am including a link to her recent blog about her research if you want to read more.    http://blog.zeynepton.com/

Ultimately, there are many ways to run a retail business, some of which are actually profitable.  It seems to me that striving to be the lowest cost provider is a tough position to sustain.  There is always a company around the corner that will figure out how to lower their costs a bit more so that they can lower their prices a bit more.  

Better, it seems to me, to be a lower cost, high value retailer.  Add a little value to the customer experience and you most likely see sales and customer loyalty increase.  Customer loyalty is harder for a competitor to beat you on, because all of the sudden you are not selling commodities but unique experiences.  In order to provide high value, you need a knowledgeable, experienced work force that can successfully and efficiently address customers' needs and concerns.  Experienced and knowledgeable staff do not tend to congregate to the low pay employer.