Episode 177: Tackle High Attrition and Win with the Good Jobs System | Professor Zeynep Ton, MIT

Zeynep Ton

What if the way we design jobs is the real reason so many organizations struggle with performance burnout and turnover? In today's episode of the Flourishing Edge podcast, I sit down with Zeynep Ton, professor of practice at the MIT Sloan School of Business and author of The Case for Good Jobs. We collectively challenge one of the most deeply held assumptions in business that labor is a cost to minimize in order to drive profitability.

Zeynep has spent years studying companies that prove just the opposite. Organizations that pay more, invest in people, and design better jobs outperform the competitors because of this. In our conversation, we unpack why bad jobs are often a design choice, not a necessity. How operational excellence and employee well-being are deeply connected.

and what leaders can do practically to build systems where people can actually thrive. Friends, this is not just a conversation about flourishing, thriving. It's not just a HR conversation. This is definitely not just an operations conversation, but this is a conversation about really bringing the power of operations with the power of flourishing and the science behind people together.

to create a competitive edge. This conversation is about dignity. This conversation is about performance. And this conversation is about really driving the deep change to build organizations that flourish. Let's dive in.

Zeynep, I'm so excited, my friend, to have you on our Flourishing Edge podcast and really discuss this amazing body of work that you've led and are pioneering with Good Jobs Institute.

Ashish, it's just wonderful to be with you. Thank you for having me.

So look, I have been such a big fan of yours. I started Happiness Squad three years ago with the mission to democratize flourishing, to help ability and flourish, live with more joy, health, love, and meaning. That was the mission. And I knew that in order to do that, we had to change the way work got done. We had to change the way leaders led their people.

I discovered your work about six, nine months ago, and it was really a big missing piece that doesn't get talked about in all the work around flourishing, HR.

positive psychology and it's this notion that you can have the best of the intents of the leader and all the skills, but if you're working in a system that is inefficient, that is not competitive, it is going to be incredibly hard to make people flourish. And your work really brought that to life, not just around the criticality of actually having an efficient operation, but more importantly,

about the fact that this is not just a theory, there are many companies who leading it. So huge, huge fan. I wanted to start a little bit with the origin of how did you actually come to this? We know what you're doing now, but talk to me a little bit about the journey to here.

Yeah, I would love to. And it might be surprising to people to know that someone who wrote a book with good jobs in the title is actually not an HR person, but an operations person. So my field is operations management. And early on in my research, Ashish, I was so surprised to find how poor frontline performance was across different companies and how...

Mm-hmm.

fundamental basic things about operations were just not getting executed. And that was costing companies a ton of money. And let me give you an example. So I started my research in retail and looking at retail supply chains. So of course, if you're looking at retail supply chains, you're obsessed with inventory management. And in fact, let's take a grocery store. What does the grocery store need to do really well from an operations perspective? They have to manage inventory.

Yeah.

and they need to manage the customer experience. And what I found in my research was that the inventory management inside the stores was extremely poor. So rotten tomatoes in the back room, never shelved to the front lines. There were mistakes in shelving so that there were stock outs that lost sales for companies.

expired milk was still on the shelves while good milk was in the back room, never get replenished. So, there were so many operational problems related to inventory management that cost companies a ton of money. So, I spent a lot of time quantifying the cost of these operational execution problems and they lead to loss productivity, lower labor productivity, they lead to lost sales, they lead to higher inventory higher cost. And the question was,

Mm-hmm.

I shrink.

Higher shrink, of course, of course, all the obsolete products and all the damaged products and the theft. So why? Why are these problems so persistent? Why is frontline performance so poor? And this is where I met the people side of operations because in every company that I studied, stores that had high employee turnover, more turnover, had more of these problems. Stores that were understaffed had more of these problems.

And I saw that a lot of retailers were living in a vicious cycle. And that vicious cycle started with a mindset. And this mindset was labor is a cost to be minimized. And I have now a lot of empathy for leaders in this field because it's a very competitive industry. Making money is really difficult in these industries when you have single digit profit margins, right? Raise the margins. You're managing.

Yes

Razor thin margins, yeah.

people you're managing, inventory, fresh products. So it is a complicated operation. when the mindset is labor is a cost to be minimized, then that forces companies to pay market rates for their employees, to operate with as few people as possible, to get as much work done as possible. And those things end up costing a ton of money.

And then of course their sales are lower, their profits are lower, and then when sales are lower, then labor budgets shrink and then they operate in this vicious cycle. So that was the starting point of my research, which was, this system. And by the way, when companies operate in this vicious cycle, they end up making a ton of other decisions that make their system really weak. when investment in people is low, when turnover is high,

Yeah.

There is no way to hire the right people and to train them well. There is no way to set high expectations. There is no way to hold on to strong managers. So what ends up happening is connected other decisions that create a very weak system. So that was the starting point. And maybe I'll just mention one thing that personally hit me. You and I are both immigrants. We came to this country. And this country...

Yep.

I lived the American dream. It was a land of opportunity for me. I think it was a land of opportunity for you. And as I was doing my research from purely financial competitive, like how much is costing companies, they're leaving this behind. I met a lot of people who were smart, hardworking, and they weren't making it. Many of them.

Absolutely.

worked multiple jobs because their income didn't allow them to make enough to take care of their families. They couldn't sleep. They had no time to spend with their children. Their schedules changed all the time that made it very difficult for them to live a normal life. So then you wonder how on earth could you ever expect these employees to perform well? Yet to my surprise, so many of them still wanted to do a good job.

But they weren't, but it was just not possible by design, by the choices, connected choices that are made in organizations. That's a very long answer to your question, my friends.

Yeah.

Yeah, no, it was a great answer and it really brings to life, right? Like you, so many similarities in our backgrounds and our parts. Like you, came to the country at 23 with really nothing more than $5,000 of a loan.

I did 20 years of my work at McKinsey was operations, reading large scale operations transformations before I started focusing on flourishing and team effectiveness and resilience work. And your work really brought it full circle, right? So I'd been in retail, I've been with manufacturers who are actually blind to the effect of their jobs and the operations.

on the people. So I'll give you one story. I was talking to a manufacturer and I asked them, we had this question and the question is, I experienced financial stress in my life.

And they said, we don't want to ask that question. And I said, why not? He said, because we know the answer. And I said, and what are you doing about it? Crickets, right? Nothing. They don't want to talk about it. The fact, the stat that's in your book, right, that you talk about, was.

$19,750 is the median pay from their primary employer, right, for 45 % of the workforce, 50 million Americans. When you put people in that place,

They're not thinking about operational excellence and continuous improvement, which is critical in retail. They're also not talking about customer excellence. They're just trying to worry about food on the table for their children, right? And I think that's where our whole thesis, when we talk about is, don't even tap, most organizations are barely tapping 30 % of the human potential in their organizations because we are actually,

not enabling them to actually worry about the things that matter. And that's what really came home in this book and your work for me.

Yeah, and.

Absolutely.

before seeing a Toyota factory. And now I've had the privilege of working with colleagues from Toyota. And a lot of others who try to imitate the Toyota production system in their setting fail to understand the importance of people for that production system. There's a Toyota house that we all learn, right? There's the just-in-time, there's the Jidoka, there's what you're trying to achieve.

Absolutely.

But that house, those pillars are built on a foundation and that foundation includes stable people. And when they say stable people, they talk about low turnover. They talk about people who know what they're doing, who can focus on the job and be able to do a good job and have the skills and training. Now, if you're getting paid $19,000 a year and you can't put food on the table,

Yes.

How can you be an employee who have the skills, the focus on the job to be able to do a good job? If you work multiple jobs and you can't sleep, how can you execute? How can you do a good job? And without that foundation, Toyota production system doesn't work. But so many of us who talk about Toyota, so many leaders who implement Toyota production system.

Yeah.

fail to realize that three important elements and do all the other things that can't work without that foundation. And for Toyota, if you look at their philosophy, people are not a cost to be minimized. They are the only asset that appreciates over time. Respect for people is such a core principle inside the Toyota production system that I wish more people talked about.

Yeah.

I couldn't agree more. And when you respect your people and they're stable and they're learning and they become experts in their part of it, they also become a source of ideas on small little things. to me, that was what's most amazing about Toyota and companies that really do this well. Every person who shows up shows up with a mindset to not just make that engine or to make that

Exactly.

make the grill, they're showing up to say, my job is to make what I do better every day, a little bit better every day. They're showing up with that lens. And once you multiply that right across, you become a huge source of ideas. But you've got to give people space. You've got to make sure that they're not dealing with all the other stresses in their life. But also, they feel empowered, they feel valued.

Yes.

And they feel they can make the actions happen, right? They can make the change happen.

Yeah, absolutely. And you alluded to continuous improvement ideas from workers, Ashish. So one of the things, obviously, my research has been more on the service sector, not in manufacturing. And when I looked at companies in that sector that are getting this right, it was amazing how similar their mindset, their thinking was to Toyota's mindset and their thinking. So their starting point is companies when...

Totally.

by continuously improving the value they offer their customers. That's the best way to grow profits. That's the best way to grow your sales, continuously improving the value for the customers. Now, that continuous improvement is only possible if we have a strong frontline workforce and great work that drives that continuous improvement. That's not possible with high employee turnover.

That's not possible without empowered employees. And that's not possible without good work. And good work, of course, has lots of different elements. We'll probably get to that. But that mindset was so striking when I spent time with Jim Sinegal, the co-founder of Costco or QuickTrip CEO or the CEO of Four Seasons Hotels. That mindset was so ingrained in them that the best companies...

Yeah.

continues to improve the value for their customers. And the only way to do that is by creating a high performing workforce that can do that.

Yeah. So look, I want to go there next because in your book, The Case for Good Jobs, you highlight that system, right? You call it the good job system, but it's really a high performance system that continues to drive amazing value for their customers.

and

improving operations and really, really enabling a workforce that is in place to do that. So I would love for you to highlight the different components of that system, because often when people go into attrition or any of these other issues, they go to pay and they stop. But I think what you highlighted in your book is actually it's a system and you have to think holistically and each part of that system supports the other. So you can't pick and choose.

Yes. You can't pick and choose. And it can't be just paid. It can't be just training. It can't be hiring. We need to understand that system. one is, so that system that I first observed at Costco, QuickTrip, which is a convenience store chain with gas stations, Trader Joe's, and Mercadona, which is Spain's largest supermarket chain, consists of two

Mm-hmm

connected elements. The first is heavy investment in people. And when I say investment in people, it is investment in pay, investment in schedules, investment in career paths, and expectations, high expectations. That's the first element. The second element is highly productive and motivating work.

which enables that people investment. You can't invest in people if their work is not productive, if their work is not motivating. And that has four different elements, focus and simplify, standardize and empower, cross-train and operate with Slack. And it's this connected system that drives the outcomes of high productivity, high customer satisfaction and loyalty, and a great employee experience, which results in low employee turnover.

Sure.

So it's a system and the outcomes of those systems are love from your employees, love from your customers, and love from your investors.

So let's talk about those in each one of those systems in a little bit of detail. So let's start with the second one first, which is this piece around what is a, you started with focus and simplify as one of the elements, right? And then standardize and empower, cross-train and operate with Slack. And I wanna go there first because to some extent, this is the value creation engine.

Mm-hmm.

Mm-hmm.

Your first system enables this. You can't do this without this other. And I want to start from here because I want people to recognize that what we are talking about in this episode and this conversation is just not a grow invest in your people because I think people are frankly very tired of just hearing about that. But I think this other element and how you put these two together is where the magic is.

And Ashish, if it were as easy as go invest in your people, we would see a more companies doing it. So let's start with focus and simplify, which is the focus part is clarifying why you exist in the eyes of your customers and giving up things that don't add value to that. At Costco, they have a term called intelligent loss of sales.

Absolutely.

I love that term. So for Costco, their focus is highest quality merchandise at the lowest possible price. That is what they're optimizing for. And they're giving up so much to be able to best at what they're optimizing for, which is highest quality merchandise at the lowest possible price. So there are some sales that they give up.

Yep.

Deliberately, they call that intelligent loss of sales because it makes them better at offering lowest prices. So they give up variety. They give up certain categories where they can't be the price leader. So that's the focus part. And simplification is take out all the things that don't add value to the customer and eliminate all the wasteful tasks, processes, headquarters.

orders to the front lines so that you simplify their work so that they can focus on serving the customer and make those decisions in a way that enables the front line to have a smooth workload. So that there aren't so many ups and downs. Those of your listeners who studied Toyota production system would know that Hyjynka level production is a huge part of Toyota production system. So focus and simplify is that way. So how does this work?

Yeah.

If the company has focused and simplified, now I'm a lot more productive. I can do my job faster. If you go to a Trader Joe's store, they will shelf faster. They will match people at the checkout faster because of fewer products, because of focus. And I'm not knowledgeable about the products and services that I offer. If I'm thinking about 40,000 skews of products in a store versus 4,000,

Totally.

It's so much easier for me to be knowledgeable about fewer products than more. So now I can be more helpful to the customer. Now I can be an expert. And that expertise is a source of pride. It's a source of motivation. So what we have done is we've created higher productivity and we've created better motivation. Higher productivity means now we can pay people more. Better motivation means we're going to be able to hold on to our employees when we pay them more.

So that's the very first operational choice.

I love it. I did a lot of work in CPG, right? In fact, many of the largest CPG companies I served when I was at McKinsey. And one of the offerings that I was leading for the firm was called Design to Value. It was all around bringing that lens of what is the value that you're adding. And if that feature is not adding value, you need to get rid of it.

Mm-hmm.

implicit with was also was complexity. You how do you simplify this long tail of SKUs? And I think there is so much that, know, CPG companies, retailers, restaurants could notice from that, because the mindset often becomes how every incremental sale dollar and hence they create all of these variant A, B, C, D of SKUs. And if they drive incremental sales, they're like, okay, we should go do it.

They might even do the math with base models to say, here's the incremental cost and hence the benefit, the profits. But I think what you highlight on intelligence loss sale is just because even if you make some money and even if you make incremental sales, you've got to take a more holistic view grounded in what do you stand for? Where do you want to win?

because no amount of that math and the calculation actually fully captures the real cost of operational complexity that you're putting onto your operations.

Exactly. And the operational complexity and very soon you lost your value proposition. And I'll say, Ashish, I'm so glad you brought this up because one tell of a company operating in a vicious cycle is this addiction to adding more and more. Because when companies operate in that vicious cycle where employee turnover is high, there are lots of operational problems, customers are not super excited about the experience. So sales are lower.

you're under sales pressure, what do you do? You add more products because you're not getting more or you drive more promotions or you do more discounts. or you open more. adding more is the cure for lower sales, but it ends up making the system a lot more complex, which then leads to even higher employee turnover. And over time, what you find is that

Audio drive promotions.

Yes.

Hmm

What had they done over time? They had started with about 3,500 skews, 3,500 products in their stores. Over time, as they performed poorly, as they were under pressure, they added more products, more products to the point where some of the clubs were carrying 10,000 skews as opposed to 3,500 where they started. They added a lot of promotions to drive traffic.

Wow.

Wow.

But promotions create a lot of variability and increase the cost in the system. And what they found was that their prices were not competitive anymore because they've added so much cost. The other thing they did was they added more membership types. Members for students, for military, for this, they had nine different membership types. So this is such a adding more is such a towel.

Of course.

for a company that's not doing well. And one of the first things that they did when they got on their good job strategy transformation was they reduce variety. They reduce promotions. They reduce membership types. And I'll tell you, those were the scariest changes because focus, you would know better than me, is a scary thing to do. Like strategy, what you're going to be good at, what you're going to give up. That requires a ton of courage.

Yeah.

which is where the system P3 comes in.

Yeah, and I think that's what I love about this work, right? And I think you said, I talk about it flourishing as a strategy rather than wellness as a benefit. What you're talking about is a system and we have to think about it as a strategy, something that you're going to commit to over a long period of time, two, three, four plus years, right? This is not because there will be some pain in the beginning, but if you communicate the reason why you communicate it externally, communicate it internally,

to say here is where we are going. we've grown to be 10,000 SKUs, right? This is kind of our cost and we are becoming lean because here's what we want to do. People are willing to get on that journey with you. But it is a strategy you have to consciously choose to walk the path. This is not something, this is not a complexity exercise where you run, you have a finance guy, you identify a bunch of SKUs, you cut it and then you go business as usual and start keep adding more, more and more.

Right? This is a strategy.

And almost, yeah, is almost every company I've worked with have tried these changes in isolation and it didn't work. In fact, Walmart itself tried to reduce SKUs before and what it did was to reduce sales. So it can't, it can't be a siloed exercise. And what enabled a company like Sam's Club to be able to do this successfully was.

Yes.

Yep.

a very clear articulation of why, and here was their why. The why was for us to be able to grow and succeed, we have to win with our customers. Here is how we're going to win with our customers. We're going to offer them the highest quality merchandise at the lowest possible price, and we're going to differentiate ourselves from other clubs by offering a frictionless, omnichannel experience.

Mm-hmm.

That was their clear value proposition. Then they said, what does it take to achieve this? Our front lines have to be able to shelve the merchandise well. They have to be able to make sure that our inventory data is accurate if we're going to have omnichannel retail. They have to make sure that they're productive. So we have to have a very strong frontline performance to drive that customer value.

Beautiful.

And then they said, what does it take to create that strong frontline performance? And in what it takes is one of the things was focused on simplify, but it was only one of the things. There were so many others and that focus and simplify in isolation might have never been done if their objective was we just need to reduce complexity.

One.

Yeah. So let's pull on that thread on SAMS and go to the second level, the second part of the system, which is standardize and empower.

Yeah.

Yes, standardize and empower. this is like for your listeners who have studied operations and Toyota, this is a very obvious one. When it comes to task design, we know that the best combination is standardizing all those things that are routine, that are done all the time so that there's one best way to do that. So let's do it efficiently and consistently, but involve people in creating those standards.

and make sure that those standards always improve over time. So that's the standardization part. The empowerment is both empower people in improving those standards and empowering people to make decisions for the customers so that they can solve customer problems. In a service environment, they can decide to go fast or slow depending on customer traffic.

They can answer customer questions, requests without asking their supervisor for help. And they make local decisions that lead to higher sales and lower costs for them. So this combination of standardization and empowerment is very different than how most other companies operate. Like I give oftentimes the Whole Foods example. Many years ago, I was at Whole Foods and

in we live in Cambridge, people's Republic of Cambridge. So many years ago you have to buy these shopping bags from Whole Foods. And then they give back like five cents every time you use them. They don't use plastics. don't. So I bought this shopping bag. was five dollars or three dollars and fifty cents. Apologies. And after the first use, my shopping bag, the handle broke. So.

Mm-hmm.

I'm in Whole Foods on a Saturday. There's a long line. I'm at the checkout. I give my $3.50 back and I say, this broke after first use. Could you please change it? The person said, I have to ask my supervisor for help, for approval. So for the $3.50, we waited for the supervisor to come. The supervisor said, OK. It took several minutes, but it's wasting that employee's time.

that supervisor's time, my time, all the people that they can at the checkout. So this is the example of if this happened at Trader Joe's, they would have changed it in a second. Right. No problem. We'll change it for a second. But the thing is, empowerment has prerequisites for companies to be able to empower their employees. They have to trust them. For them, they need to trust their judgment. They need to trust their competence.

Totally.

Yeah, no problems. Here it is. We're going to make it happen.

and they need to trust their goodwill. For them to trust their employees, the employees have to have expertise in what they're doing. So focus and simplify really helps. And they need to have an experienced, motivated workforce who will make the right decisions. So stable workforce so that they know what they're doing. So you can trust them to make decisions. So that's the focus and that's the standardized and empowered part of the good job strategy.

Yeah, a stable workforce.

Yeah, and what's amazing about that part is, know, we always think about people think about, many people have continuous improvement they've done lean, they have continuous improvement. They're like, yeah, yeah, we ask people, we have this thing where people can put in ideas for improvement. But I think what's amazing about Toyota, what's amazing about these environments is,

it is the people who are empowered to actually execute. They're not just giving ideas. They are actually empowered to go do it because they know, and really, because of stability and tenure, if somebody is doing the work, this is true for manufacturing, this is true in a data center environment, this is true in a retail store. If somebody's been there for a long time, the person there knows the best. Also, if you trust the people,

you all of a sudden are able to level load, people can move things around on what's needed versus not, versus somebody calling an audible, right? The more we are able to push intelligence, the more we are able to push trust to the edges. We are operating in a world where things are moving so fast. That is a competitive edge.

Exactly.

Yeah. And that's why, if you look at Costco, Mercadona, Trader Joe's, QuickTrip, I these companies, I studied them 15 years ago and they're still loved by their investors, customers and employees because they're constantly improving and because that improvement is coming from their front lines. Like if you look at, and they're improving in every way, Ashish, it's not just processes, even if you look at their hiring practices.

Those practices have an owner. People find ways to improve hiring practices. that's improved. Training is improved. How the work done is improved. And you can't look at them and copy them now because they're going to change. that's their edge. And that continuous improvement from the front lines. mean, Costco has more than 200,000 workers. When you had 200,000 people,

Totally.

who are contributing to improving the operation, how much better would you be than if you have a couple of people, just the home office people who are trying to do that? And we know people who are closest to work are the ones who know how to improve that work. People who are closest to the customers understand what customers are asking and communicate those ideas to the home office. But...

if you have 50, 100, or 200 leaders providing all the ideas. Totally, absolutely.

Empowerment, again, you can't ask people for ideas if they don't have time. You can't ask people for ideas if they are so overwhelmed because there are so many things they need to do. You can't ask them for ideas or their ideas won't be great ideas if they've been there for just three days or there are so many products and services that they're just not knowledgeable. So it has prerequisites. And in a system with high employee turnover,

They just don't know.

those frontline idea systems oftentimes don't work because the organization is in a firefighting cycle. They don't have the capacity to work on ideas and work on improvements because they're constantly fighting fires.

Yeah. You get to the third element of your system, which is cross-train.

Yes, this is a very simple element, especially in a service environment. Cross-training is about training people to do both customer-facing tasks and non-customer-facing tasks so that you achieve flexibility. So when there is a change in demand, you can adjust to changes in demand. So in a Trader Joe's, if there's a long line of customers at the checkout, they'll ring the bell. Somebody will come.

somebody who's shelving merchandise will come and open a cash register. Now, what does cross training, and I'll contrast to Whole Foods again. At Whole Foods, cashiers, the only thing that they do is they operate the cash register. So what does that mean? If your job is only to operate the cash register, when there are no customers, you're waiting there.

Yeah.

You're idle waiting there. At Trader Joe's, if there are no customers, you're shelving merchandise. You're cleaning the floors. You're ordering merchandise. You're doing other things. So cross training is a source of higher productivity. So it enables investment in people. But cross training is also a source of motivation. The job itself is more interesting when there's that variety. mean, organizational psychologists have shown this in so many different

Totally.

Absolutely.

studies, task variety gets to that. The trick about cross-training is to balance that flexibility and motivation with specialization. you cross-train everyone to do everything, that will be a sure path to mediocrity. So the good news from operations though is that even a little bit cross-training can go a long way in terms of flexibility and in terms of making the job more interesting.

Absolutely.

Well, nothing brought this to life. And by the way, this is a fundamental, it's a meta concept. So there might be many people who are looking at this saying, yeah, I don't know if cross-training works for me or others. And I wanted to bring this to life. When I read this lever, I was working with USA Gymnastics. I helped them with their strategic planning process last year from Paris to LA.

And in that, one of the groups was membership. So if you think about membership and that team of membership, they obviously do their day job, right? But memberships is you're taking care of parents, you're taking care of like all the athletes, et cetera, et cetera. Guess where parents take their kids for gym classes? It's in the evenings. So when I have an issue, guess when I'm getting all the calls? You're not getting calls from your members in the day.

Mm-hmm.

Yeah.

you're getting your calls from members in the evenings and nights and on the weekends. So think about that job. Now, if you have a group of three or four people who run membership, the whole organization is about 50 people. You have three or four people who are driving membership for the whole country, for the whole sport. Think about their lives. They're overwhelmed, they're overworked, and they're in the cycle of, who else would do it? You have 46 other people, right?

They're all getting it.

Mm-hmm.

there is probably a similar set of questions that parents are going to ask, right? And so this notion of what elements of the membership, if we just look at the type of calls, how could we rotate? How could we have other groups potentially do that? Because often what we would heard from membership is we can't even take any holiday because who's gonna cover the jobs while I'm on holiday? But if you cross train, there is somebody who could go do that. So I think this actually lever

Good job.

combined with standardize and empower and focus and simplify, really allows us to an ability to meet it creates surge capacity without necessarily using people as kind of the surge capacity. So rather than messing people around, you create capacity within because it always exists.

Yeah, and it also creates teamwork too, right? Because now you're in it together. When you have a lot of work, Ashish, and I don't, I can come and say, Ashish, let me take that off your plate. So it's the search capacity, it's the teamwork. And one of the things I didn't talk about, and it's important for both focus and simplify, standardize and empower and cross-train all together, operate the slide leads to this too, is ownership.

Yes.

Totally.

ownership of your work and improvement. And I'll give you one example, one of my favorite meat managers from Costco. when he talks about his meat department, you would think that like his compensation is tied to his performance because he is constantly thinking about how that, like I'll give you one example one day. I'm, and this is in my, this is in my book. I go to Costco and I see this Todd Miner is his name.

I see Todd and he's really upset. And I said, Todd, what's wrong? Like, why are you so upset? And he says, you see this ribeye? I'm like, yeah, I see the ribeye. And he says, I'm like, what is wrong with it? It seems totally fine to me. He says, the fat trim on this ribeye is supposed to be a quarter inch thick. These are not a quarter inch thick. And in his mind, he's saying, if it's not a quarter inch thick, I lose eight pounds of meat every week to shrink.

that cost me $2,000 or whatever he calculated per month. He's connecting that to financial performance of Costco. And he says, and if the fat trim is too big, then it's, it's, I'm disrespecting my members. I'm giving them too much fat. So here's a guy who re owns his business. Why does he own it? Because first he only works in that meat area, but he's cross-trained and he knows everything in that area. There are very clear standards.

A quarter inch thick is a very clear standard and he knows every single standard because there aren't too many standards. Now there aren't like 5,000 different SKUs, there are only certain number of SKUs so he can refocus on that. So one of the benefits of this, all of these choices is people are not in a position to own their performance and constantly think about...

Absolutely.

improving that performance. When Todd comes to my class the day after, I ask my students, what do you think his compensation is based on? And these are MBA students and they're taught to think that the only reason people will work this hard is if their performance is tied to this. And they say, it must be tied to shrink because he was so passionate about shrink. Some people say it must be tied to sales because he talks about sales. And I say what? He gets zero performance based bonus.

And then they're surprised. How can he be so motivated without that? And then I get into why he's so motivated because he makes a ton of money. He has a stable schedule. He has a health plan that enables him to take care of his family. He has a career path and his work enables him to shine in front of the customers every single day. So,

Yeah.

So beautiful.

Yeah.

When you have a system like this, of course you'll achieve those types of outcomes.

Yeah, no, I love it. And I see these all over the place. I'll tell you in my last 18 years of doing operations work and now people are like, I see this everywhere. That I think oftentimes people are so blind to the fact that if you stop thinking about people as kind of just, I'm gonna plug people here's my divan, I'm gonna plug people. And it doesn't matter how many hours I'm giving them, right? Because I've got this base.

And then you don't achieve the results. And I think what you highlight in this cross-training is so much, the variety of the job creates motivation. You also, by the way, lot of what are the most common issues you run into, companies say is, yeah, we have silos, people don't collaborate. What a beautiful way to actually bridge.

Mm-hmm.

right? And also such a beautiful way in terms of in your day-to-day jobs to grow future leaders because through their job they're actually learning so much about the business. They're not just working on that one station, they're becoming better at the whole thing and then you promote from within.

Exactly. And these companies, almost all of them have a commitment to nearly 100 % promotion from within for operational roles, not for all home office roles, but they're at Costco store managers will be promoted from hourly employees, assistant managers at quick trip. Every store manager has to come from hourly. Mercadona is the same way. So Toyota is the same way.

Beautiful.

So of course that cross training along with the other stuff enables that promotion from within.

Yeah, I want to go to the fourth level because I also love it and it's so counterintuitive to how most people want to go operate with Slack. So talk about that.

I love it too.

Yes and Ashish let me ask you when you have too much on your plate and when you're juggling so many things how does that affect the quality of your work?

of course. One, you're frazzled. Second, you always feel you're rushing, so you don't get enough of the good quality work done. But more importantly, you also don't have ability to think beyond. You're just in the here and now. You have higher number of errors because you're rushing through. Yeah, all of that.

Yeah, and this is so intuitive for us when it comes to our work and then when it comes to frontline work, it's oftentimes not done. one of the phrases I read, hate is lean and mean is efficient because lean and mean isn't efficient. Trying not giving people enough time to take care of the customer, to do a good job, to improve their work ends up costing companies a lot of money. So operate the Slack.

Yes.

is recognizing that there's always variability in the amount of workload in an environment. You never know exactly how many hours of work there will be. So given that variability, estimate the average and add a little bit slack so that you can meet that variability, absorb that variability. You can take care of the customer and do a good job. And of course, operate with slack of all the other operational choices.

is the one that has most dependencies. If you haven't focused and simplified or standardized your operations or cross-trained your people, operate with Slack becomes a really, really expensive choice because then you're just adding more in a highly variable system. I oftentimes joke with my students that you can't operate with Slack if you have slackers. And operate with Slack requires a high performance system. People like Todd.

Yes.

who are ready to go to work every single day. But when companies operate with Slack, not only do the front lines do a much better job and improve, but the managers, the front line managers, and in a store, like in a place like retail store, in a place like factory, I would argue that those managers, factory managers, store managers, restaurant managers, they might be the most important people in the organization.

And operate with Slack enables them to focus on leading people, developing people and improving performance versus fighting fires. Cause I've seen in so many environments when there's no operating with Slack, somebody calls out or there are so many customers. Now the managers are doing the work. They're not, they're not leading people. They're not thinking about improving performance.

Yeah.

They're just firefighting and doing the work. And what a waste that is. it's a huge part of the good job strategy. And it has the most number of prerequisites. So when we work with companies, say, if you have a system problem, adding more labor is not going to be the answer.

Yeah.

Yeah this one definitely struck a chord with me and it was, can see so many parallels from all the other fields that I've worked at. So first, if you're a manufacturer, spend a lot of time in manufacturing, would you ever run something at 90, 100, 110 % OEE? First of all, 110 % is actually not possible. But for a moment, let's just assume, would you ever run something at 100? you're gonna grind the thing to a, it will break down, right? And you'll have huge...

Yeah, and if there's any variability in your system that's going to lead to huge problems.

Exactly, so you never want to be above 80, 85%, right? You always want to have a certain amount. Now go look at your every leader in your company and go look at the calendars and tell me if they have 15 % empty space in their calendar. They don't. They don't. If you look at front lines, supervisors and managers, they don't have that. In fact, I would suggest they have actually even, not only are they not operating with Slack, they're actually operating way above

It's true for doctors who are required to transcribe digital notes, they work all day serving patients and then in the night are writing and typing in comments to make sure they're meeting the requirements of the hospitals in which they work. The same is true for leaders, same is true in call centers.

So we don't use the basic premise. Not only are we not operating with Slack, but we are overburdened. And as a result, what's getting squeezed? Time to think, time to build relationships, times to coach and mentor others below you, right? All of those things get lost and that's most people don't get. What worries me so much in today's environment, Zeynep, is

Mm-hmm.

with AI, with the productivity, and that's actually becoming possible now, people are not taking that and saying, my god, I can do 20, 30 % of the work that could have been done. So 20, 30 % can be automated, we can leverage agents, et cetera. Let's give people that 20, 30 % of their time back so they can operate with Slack. We are actually stuffing more work down.

because there is a fundamental story that people hold because they don't have the other three elements that people are slackers or we just got to push more work down and they're not realizing the impact of not operating with slack.

Mm-hmm.

Yeah. And it also now with the AI, it comes back to where we started with the mindset of what is labor? Is it a cost or is it a value driver? So at a place like Toyota, Costco, Mercadona, labor is a value driver. It drives the customer value. It drives continuous improvements. So when these companies think about AI or automation in generally,

Absolutely.

In general, they think about how do I maximize that value to the customer? How do I enable my employees to be more productive? And how do I make their job a better job? That's what they're asking. Now, if the mindset is labor is a cost to be minimized, then the solution is how do I use AI to get even more out of my people? How do I substitute them? How do I replace them?

Or how do I replace people?

I'll give you one example about AI from QuickTrip, the convenience store chain with gas stations versus Amazon Go. Do you remember Amazon Go? Amazon Go, premise was, their objective was let's operate stores without people, right? That was let's remove all the people. They had the videos, the cameras all over to...

yeah, of course.

to track movement, mean, amazing technology and machine learning. And it was supposed to operate without humans. And it turned out that they actually had a lot of humans just not in the stores, but in India who were going through those tasks and Amazon ended up closing that. And I think that was a great example of seeing labor as a cost and substituting people with technology. Now, QuickTrip.

Yes.

Another convenience store chain is now using AI for similar things. They want when you go to the cash register, they want using the same video cameras. They want to be able to see what exactly you bought. So the person at the checkout doesn't have to scan it at all. But they don't want to remove the person at the checkout. They want to remove the work. The CEO of QuickTrip told my students, said, I have a

person there, I have invested so much, why would I waste their time scanning products? If I can take that out, I would gladly take that out with technology. I want them to now focus on the customer, ask them, how was their day? How was their purchase? Did they find everything okay? Now I want to leverage them to create those relationships with my customers. It's a very different orientation.

Absolutely.

to technology and they're winning with their customers and others aren't.

I think that is the opportunity that I am constantly talking to CEOs and others about. Unlike thinking about people as a cost, there are companies doing that. A lot of people are moving down in that direction. We really are at this really critical juncture. The market, the common view is people are a cost and AI can help us become more efficient.

Hence, you see the announcement yesterday from Snap, 10 % workforce reduction. You actually saw the announcement a month ago or two months ago from Block, 50%. It's this race of Facebook, Amazon. So many companies have gone down this route of just saying, yeah, we're going to not need as many people, and we're just going to use AI to replace them. That's a very clear model of thinking about people as cost. And I think there are two fundamental issues with that.

I think the first of course is that you're letting go of people with so much experience and value to add. The long-term effects of a layoff where you show people that they are replaceable for the 90 % who are left behind, you've just lost them. Because they see it, the long-term effects from Adam Grant's work of a layoff is four and a half years.

Mm-hmm. Mm-hmm. Mm-hmm.

Right, four and a half years. It doesn't matter what your purpose is, what you're trying to do. Your actions speak louder than those words on the page. So that's the first, right? You're actually taking a chunk of impact from your organization. But there's a second big fundamental flaw in this. If you are doing that and your investor, your board comes to you and says, hey, Evan.

you need to take 10 % everybody else is doing it. There is a fundamental belief in that. So instead of agreeing to that, what we can also say is, well, that's interesting, because what this shows us is you don't believe that there is long-term value in the company, that we don't have more possibilities to grow and create value. Otherwise, you would take that capacity and you would say, hey, maybe up till now, we only served X markets, but now we can serve two X.

because I've taken out work, which means our value can go so much further. And I think that's a counter argument that we're not actually seeing. And I think that's where the biggest potential is, that if we leverage AI together with a system like what you have, what you've been pioneering and implementing at Sam's Club and Quest and so many others, there is really an opportunity to have your cake and eat it too.

because you can get more productivity, you can drive higher customer excellence, you can lower attrition, you can win the hearts of your people, and you can truly create a company, right, which is way more competitive than ever anybody else can compete you at it.

Yeah, and you've not created trust in your organization. if we believe that trust is important, and I imagine a lot of people believe that trust is important, if the tendency is to lay off the moment things get tough, or because others are doing it. By the way, I think there's research that shows that there's a contagious effect of layoffs. So people end up doing it because others are doing it. Imitation is a huge thing.

Absolutely.

a way to show to your employees that trust is not an important thing here. Whereas a company like Toyota that has a policy that we're never going to do a layoff from improvement. We're going to do anything possible before we lay off people. Then that creates that type of trust that is probably hard to quantify on a piece of paper, but it has all sorts of long-term effects. mean, during COVID, we saw

Yeah.

which companies were the first ones to let their people go, and which ones said, we're going to stay as long as possible, and we're going to do everything possible. Yeah. Yeah. And of course, this is a business. The survival of the business is really important, but we're going to do everything possible to make sure that we take care of our employees.

We're going to take compensation cuts. We're going to do all these other things before we lay people off.

Yeah.

And they're the ones who won. They're the ones. I had the CEO of Liberty Energy who's now as energy secretary, Chris Wright on our podcast. And he talked about this critical time in the life of Liberty Energy when the cost of shale had just, the oil had just dropped by like 70%. And so it was just not feasible for them.

They're the ones who won.

Mm-hmm.

to be able to operate and in a profit. And he made a commitment to his suppliers. He made a commitment to his employees. And he said, we're not gonna let people go. We're gonna work our way through it. They took massive compensation cuts at the senior most levels. They asked their employees to get involved with who had vacation, who had more flexibility versus less. They reached out to their suppliers and said, we will buy every piece of sand that I contracted with you.

you

I just need your flexibility and your support to be able to support us through this cycle. They came out of that crisis stronger with higher shareholder returns, with higher employee engagement, with higher profitability. They have still to this date the highest return on net assets than any other player in the industry because they bet on their people.

Yeah.

Yeah, and they show their people that you're not items, you're not numbers on a spreadsheet for us.

Yeah. So look, let's briefly cover your first part, because that is all about the people. And the reason I wanted to focus on this before that was because a lot of people talk about that, and that's where they first go. But that is a critical component. If you don't have a stable workforce, none of these things become possible. And so let's talk about those three or four elements in the people part of the system that allow

the others to work.

Excellent. So we have the four choices, operational choices that created highly productive and motivating work. But that highly productive and motivating work requires stable, motivated, capable employees. So how do you get those stable, capable, motivated employees? Not just through the work, but through other means. That's the investment in people. And this is where my friends in operations

tend to, this is the place where they tend to ignore, right? We focus so much on the operational stuff. We get excited about staffing, training, cross-training, standardizing and empower, even simplification. But then we miss the secret source, secret enabler, which is investment in people. So I'll focus on four things related to investment in people. The first is pay and benefits, which is...

Yep.

I didn't understand, Ashish, how important pay and benefit was until I started spending time with workers and understand their lives and their financial constraints and what happened when they didn't have enough pay. So for most companies, when it comes to setting pay, they look at the market. Like they look at all the other companies, what are they paying? And I'll pay whatever they're paying. But those are also other...

Yeah.

Yep.

players who have high employee turnover who operate in a vicious cycle. So for Costco, Mercadona, for QuickTrip, when they think about pay, they're thinking about, it going to be high enough for our employees to live, to take care of their families? And is it high enough for us to attract and retain the right people? They're asking a very different question. And their pay choice ends up being very different than their competitors. So if you look at Costco,

Now the average pay is a little bit over $32 an hour, which is higher than what factory workers get paid. And we call factory jobs good jobs and like substantially higher than what all the other retailers pay. And pay is there are so many components, so many nuances to pay. It's not just starting pay, there's a pay progression, et cetera. But the first element is that pay

Yep.

that enables them to put food on the table, roof over their heads, and be able to take care of their families. Because the absence of sufficient pay, I learned in all this work, guarantees high employee turnover. Yes, it's not enough to make a job a good one. It's not enough for companies. It's not enough for workers. But its absence guarantees high employee turnover and it guarantees people can't focus on the job.

Yes.

So that's how important pay is. At QuickTrip, they have more millionaires in their front lines than the number of stores. This is a convenience store chain with gas stations. Their store managers, who manage like 10 to 15 people, make well over $100,000, like way over $100,000. So pay is one of the elements. Pay re-matters.

Yeah.

Pay matters. No, and there's so many ways, and there's so many ways to make that possible, right? The first is what you highlight, which I loved was what's the living wage versus the minimum wage or what everybody else pays? Plus, pay is one component. What are the holistic set of benefits? Look, healthcare costs are getting higher and higher. People file for bankruptcies because they can't take care of all the medical costs that hit them.

There is education, right? We are gonna talk to the CEO of Gilt around how you're actually investing in benefits around education to kind of help people. Colleges are getting more and more not affordable for so many people. So I think really holistically thinking about pay and benefits as a key, again, you will not do it if you think about people as just cost.

But if you think about people as assets, you want the best to come there, you want to grow them and support them. I think pay and benefits is a very powerful one. And I love that you highlight that in the work.

Yeah, and I didn't understand how important it was until I started working with companies and spending a lot more time with workers. And it's like there's a ton of emphasis on belonging, purpose, achievement, meaning. All those things are really important. But without pay, nothing else really works. If people can't put food on the table, no amount of belonging or meaning can compensate for that.

Yes.

But that's just one element. So the other is, which is especially important in service sectors, is having stable schedules. And stable schedules have multiple components to know your schedules in advance, to have consistent hours, and to have enough hours. So the pay might be $40 an hour, but if you're only given 10 hours a week,

That's $400 bucks a week. That doesn't do much. So the other component is stable schedules. And in isolation, it's really hard to create stable schedules. But all the other operational choices, cross training, focus and simplify, standardize, those enable the stable schedules. So those choices, the investment in people choices also require the operational choices. The third part is...

Yes.

career paths. So when you talk to workers at Mercadona or Costco, they don't think about this as a job. They think about this as a career. This is their career because the companies promote almost exclusively from within for field positions. And when I'm hired as a part-timer or a full-timer, I know that I can grow in this company. And that internal promotion is

such a big driver of staying longevity in the company and motivation. And it goes hand in hand with cross training like we talked about and with the view about what people are, what the mindset is about people. So those are the three investments. other thing that I want to emphasize is high expectations. It's a gift to give high expectations to people.

One of the easiest ways to demotivate people in an organization is to have others who don't work as hard. So high expectations is another employee investment. And it's not a dollar's investment, but it is an investment that drives that high performance.

Absolutely.

Yeah this is another one of those fundamental myths that need to be busted. A lot of people operate saying, yeah, people want to just, this is just a job, right? People want to come in. Nobody wakes up out of their bed and say, I don't want to do the best job that I can. There are all these environmental conditions, right, that cause people not to kind of give their best. But everybody wants to show up and do their best job.

And having high expectations is a gift, right? Look, you I spent 17 years at McKinsey. We expected so much from a brand new BA, undergrad joining us. And that many people are like, wait, you want me to coach somebody who's been there for 20 years? Yes, we expect you to do that. How am I going to do that? You will figure it out. We will guide you. We will support you. But yes, you are capable of that.

And that's why McKinsey is one of the biggest leadership factories because we have high expectations. People at the firm grew at a much faster rate than they grew anywhere else. We gave them the opportunities. They are paid well. They are fundamentally, we're supporting them with continuous learning and development on the job. And that's the magic, right? That's the magic. That's what makes it possible.

and Ashish it seems like you also really believe in them. You create those conditions, you create the system but you also believe in them.

I absolutely do.

Absolutely. without that, you can't fake it. This is not one that you can fake.

And exactly, exactly. And I think one of the things that I've observed among leaders who have done this, it could be Jim Sinegal, the co-founder of Costco or John Turner, who is now the CEO of Walmart Enterprise, but he was the CEO of Sam's Club when I first met him, is their belief in people.

and their belief in the potential of people. And I think one of the reasons they have that belief is they worked in the front lines themselves. They know the work. They know the people. They know how motivated and how capable people can be if you set them right. And I'll give you one anecdote. One of the companies that adopted the good job strategy is Goodwill. And this leader, Ed Durkey, he did this in California first, in Southern California, and then in central Florida.

I'm both right there with my colleague from Harvard Business School, Janet, you can write a case about Goodwill. And at Ed Durkey had made amazing changes to the investment in people. They raised pay from, I think, average of $9 an hour to $15 an hour or $16 an hour, huge pay investments, full time schedules, and made the operational choices to enable and leverage those investments.

and at the end achieved outstanding results. They increased their profitability, increased sales, increased productivity, and Ed wrote an email to another CEO, and he shared that email with me, and he let me share it with others. And he said, what he concluded after all this was he said, productivity, and I'm going read it from my screen here, productivity is a function of leadership.

He said, in both California and Florida, we've achieved our productivity gains with the same employees. It's the same people. What's different are the facilities, the processes, the work, the equipment, the conditions. And then he said, your employees can't make those changes. You have to. And if you get things right, you'll have more than enough money to pay your employees and serve your community. Now, I've seen this over and over again, the same people.

performing so differently, so much more productively under a different system. Maybe not all 100 % of the same people, but more than 90 % of the same people. And I think that's really powerful. And it requires that belief in people and belief in their ability to do things.

Yeah.

I think that was such a wonderful email and a beautiful story. It starts with belief in your people? And to that point, I want to I wanna highlight and I wanna celebrate Bob Chapman. he passed away a couple of weeks ago a couple of weeks ago. Your work in the service sector in the retail space, Bob wrote a book called Everybody Matters. It's based on his journey as the CEO, Barry Waymiller.

Mmm, yes.

Mm-hmm.

Mm-hmm.

manufacturing, 80 acquisitions, 95 % of the people in every one of the companies that they acquired stayed the same. And the turnaround in performance was massive.

And this notion also of this notion that everybody matters. We want to invest in our people. We want to give them the tools. We want to do lean, not because it's a productivity engine, but it's engine to really tap into the human magic.

that is in our organizations. So this work, this conversation is not just a retail conversation or a restaurant conversation or a service or a call center or a manufacturing or a not-for-profit this is universal.

We are predominantly in a service economy, even when we have manufacturing, it's the people who fuel it. I'm serving ConAgro right now. They're a $10 billion organization. 85 % of their people are in manufacturing, frontline jobs. This work has the ability to turn.

and

including

our human assets in a moment where there many people who are wondering in AI, are employees replaceable? This work allows you to tap into the power of your employees. And if you make that choice now, I fundamentally believe that I think you will create a competitive distance that will be untouchable for other companies for a long time to come. And that's why Zeynep, I'm so, so excited.

to have found you, to be collaborating with you, and to really take these two fields that have kind of the field of operations and the field of human performance and flourishing, and to really bring this together to make a huge impact on people, to make a huge impact in the companies in which they work, and in the end to make a huge impact in the communities in which these operate. So thank you for this amazing, amazing work that you've been pioneering.

Well, thank you, Ashish. And I'm so glad you mentioned Bob Chapman. What a difference he's made in the lives of so many others. I hope that he's resting in peace. I hope by my deepest condolences to his family and they must feel so proud of what he was able to do to make a difference in this world. What a legacy.

Yeah.

Unbelievable, unbelievable man. I'll have one regret I'll always have. Two weeks ago, I was actually scheduled to record and cover his story with him. And I got an email about him passing. So I'm still going to record the podcast. I'm gonna do it without him, but I'm gonna do it based on the book and telling the stories.

because I think it's truly an amazing example and the lighthouses you've created Zeynep are beautiful examples, Sam's Club and so many others where you've done the work Quest and so many others you talk about. So.

Well, it's not me doing it's those leaders, courageous leaders who do the work. I do the research and some encouragement, but it is completely others who make it happen. So I'm grateful to all those leaders.

Yeah, well thank you. This was such a joy to record with you. Thank you. I'm so grateful and looking forward to really amplifying flourishing in the world together.

I'm so grateful to have found you and I'm looking forward to working together to make a difference in the ways that we can make our difference. So thank you for having me. Thank you for your kind words and thank you for all this encouragement to work together. And I'm looking forward to it.