Todd Palmer: Invest in Employees for Greater Profits

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For the 10th straight year, an annual survey by the ManPowerGroup, a human resource consulting firm, reveals that one in three U.S. employers report difficulties filling job vacancies, due largely to talent shortages.

The data showed two interesting pieces of information — the problem is getting worse and employers aren’t doing much to solve it.

Among U.S. employers, 48 percent acknowledge that talent shortages have a medium to high impact on their business, but few are putting talent strategies in place to address the problem. One in five employers are not pursuing strategies to overcome talent shortages, despite the negative impact on their business.

While it’s a nuisance today, if not addressed, the lack of a talented workforce could have wide-ranging consequences in the very near future. Could it be that employers aren’t really sure how to solve this issue?

Typically, companies start new employees at or near minimum wage, provide poorly-designed on-the-job training, start them on a second or third shift or a mixed hours schedule, and treat them like a human robot in a job with no meaning or purpose from the new employee’s perspective.

This is a demotivating mixture of poverty-level wages, poorly designed training, chaotic scheduling and is another reason for a new employee to keep options for a different job opportunity.

The old rule of thumb for many employers has been to drive down wages and reduce operation costs. This is typically a function of reduced sales or margin erosion. This short-term mentality creates a vicious cycle of disinvestment in their workforce in the search of higher profits.

Has the “doing more with less” mentality run its course?

Consider the findings published by Massachusetts Institute of Technology professor Zeynep Ton, in her book The Good Jobs Strategy: How the Smartest Companies Invest in Employees to Lower Costs and Boost Profit. She argues that a company can adopt a low cost strategy that promotes investments in employees. Ton says treating employees as assets in which companies invest resources into can foster an environment for profit, efficiency, and better customer service.

What if the focus shifted from lower costs to long-term, smarter investments: creating products or services that people want to buy at a fair margin and providing jobs that people want to keep? When labor is understood as a strategic asset, not a cost to be minimized, everyone — from customers to shareholders — fares better over the long-term, Ton says.

By changing their workforce management systems, companies stop thinking about people as cost centers and units of production and start thinking about them as sources for possible opportunity and customer satisfaction.

The result of this shift by employers is that employees are more productive and satisfied when they are able to get their work done, have the opportunity to focus, and feel connected to a higher purpose at work.

Ton’s counterintuitive money-making approach finds its roots in a business model that controls costs, offers a living wage, and satisfies customers. Here’s how The Good Jobs Strategy works:

1. Offer Less. In retail, for example, controlling costs starts with offering a smaller range of products, fewer promotions, and limited hours. When we think of Costco as a big-box warehouse store, consider that it’s also a limited-selection, bulk-buy store, which pays employees a living wage greater than its competition. There are only a few brands of food, clothing, cleaning products, etc. It offers limited promotions; its hours are shorter than most retailers. Yet, costumers pay an annual “club fee” to shop there, and its public stock outperforms Walmart’s on Wall Street.

2. Standardize and empower. Ton freely admits borrowing liberally from the Toyota Production System. This method incorporates such elements as employee decision making, giving employees a say in the execution of the strategic vision of the company, and empowering them to bring ideas and change options to management.

3. Cross-train. Instead of specific jobs, in most cases, employees shift jobs based upon work flow. You don’t hear, “It’s not my job” when shopping at Trader Joe’s, a firm studied by Ton. When someone rings the bell indicating help with cashiering, employees closest to the checkout rings up the customer. Any small, successful manufacturer already cross trains employees out of necessity. In many shops, machinists can weld or do CMM quality checks. By being involved with several steps of the manufacturing process, employees are able to provide “hands on” experience to management.

4. Operate with slack. Overstaffing actually reduces costs. Skeptical? The “extra” staff doesn’t sit around — they participate in training and continuous improvement geared to improving the work flow. Coupled with cross training, they move to high-workload areas. This also reduces the need for overtime, creating greater work life balance for the employee.

The Good Jobs Strategy is clear: Companies that control costs and consider employees as assets, not expenses, boost customer satisfaction and loyalty by producing quality products — while bolstering their profits.

Todd Palmer is founder and president of Troy-based Diversified Industrial Staffing and Diversified PEOple LLC and a regular contributor to DBusiness.​

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