REVIEW: How Good Is Costco, Anyway?

It’s not often that a business professor at an elite university argues in favor of investing in workers. But that’s what Massachusetts Institute of Technology professor Zeynep Ton does in this book, The Good Jobs Strategy: How the Smartest Companies Invest in Employees to Lower Costs and Boost Profits—which is at once useful and frustrating.

It’s useful because it provides examples of large retail companies that treat their workers well, operate efficiently, make money, and still sell goods at low prices.

It’s frustrating because there’s no mention of unions or workers’ organization of any kind. In Ton’s telling, the Good Jobs Strategy comes from enlightened management, rather than workers’ efforts.

Ton, an operations management expert, draws her conclusions mostly from her study of four retailers: Costco, Trader Joe’s, QuikTrip, and Mercadona, a large Spanish grocery chain.

These “model retailers” generate strong financial returns. Yet their employees are paid better, receive better benefits, have more reasonable schedules, enjoy more variety and discretion in their work, and rate their jobs more highly than employees at other retailers. More are full-time. Fewer face layoffs in tough times.

Everybody Wins

What is the Good Jobs Strategy? It’s investment in workers’ pay, benefits, and training—combined with four specific operational improvements: offer less, standardize and empower, cross-train, and operate with slack.

All the “model retailers” Ton cites offer fewer products than their competitors. They standardize many tasks, but also allow employees to make many decisions on their own. They train their employees to do many jobs. And they have more employees than absolutely necessary.

The combination is crucial, according to Ton. For the strategy to succeed, companies must do all four and invest in their workers. The productivity increases that come from better-trained and motivated workers more than offset the increased cost of investing in them.

Consider Trader Joe’s, for example. It offers a relatively limited assortment of groceries. That means lower inventory costs, since fewer items are lost or spoiled, and lower product costs, since it buys greater quantities of fewer items.

Stores are always well staffed, and employees are trained to do most jobs—some, such as cleaning aisles, without much discretion, and others, like answering customer questions, with considerable personality. Customer service is better because employees know the product offering more completely and have more time to serve customers.

The Good Jobs Strategy makes everyone happy, Ton reports: “Since improving operations helps employees do a better job—sometimes in ways the customer can see with their own eyes—employees feel greater pride and joy in their work. (Most people like being helpful to other people.)” This in turn cuts turnover and boosts employees’ dedication.

She compares this virtuous cycle to the vicious cycle generated by the Bad Jobs Strategy pursued by Walmart and other low-cost retailers. These companies see labor only as a cost and try to minimize it. Underinvestment in labor leads to operational problems, which lead to decreased sales and even increased costs, leading back to further cuts in labor. Everybody loses.

Empirical Problems

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While it’s inspiring to read about companies implementing the Good Jobs Strategy, there are at least four problems with Ton’s work.

First, and most obvious, the Bad Jobs Strategy can be quite profitable for quite a long time—as demonstrated by Walmart, the largest private employer in the world. Company executives and owners have little incentive to implement the Good Jobs Strategy, which requires extra effort and trust in frontline employees, when the Bad Jobs Strategy is so lucrative.

Ton doesn’t address this directly, but she implies that Walmart’s leaders simply don’t understand that they could make even more money if they took the high road. Given that Costco, Trader Joe’s, Mercadona, and QuikTrip have been around for decades, this is not a satisfying explanation. Nor does Ton give an example of how a company moves from the vicious cycle to the virtuous cycle.

A second, less tangible, problem is that the Good Jobs Strategy roots employees’ well-being in a deep commitment to their employers and customers. Workers are expected to think and act like the company, putting customers first and perpetually thinking of new ways to please them. Do we really want to embrace a model in which our personalities are shaped to meet market demand?

The third problem is that the Good Jobs Strategy relies on the goodwill of enlightened corporate owners and executives. They’re willing to take the high road, even though it’s harder.

Ton insists that model retailers are more profitable than their competitors—and she is correct. But she admits the strategy isn’t easy. It’s not taught in business schools, and cuts against the grain of how most managers think. And getting operations right is difficult, with lots of room for error. Given the intense competition of the retail business and the risks involved, it’s just easier to implement the Bad Jobs Strategy.

What about Organizing?

And fourth, Ton completely ignores the best Good Jobs Strategy there is: workers’ self-organization.

She sees no role for workers’ own efforts to make jobs good. At her model retailers, workers may suggest ways to improve their jobs, but the decisions remain with management.

To her credit, she does argue that companies should put their values before their short-term profits, and gives several examples, including companies that resisted layoffs in hard times or made additional investments to improve work. But workers’ empowerment in the Good Jobs Strategy is limited to operations—not questions of control, investment, borrowing, product lines, or branding.

The truth is that when workers have organized, as industrial workers did in the 1930s and 1940s or as public workers did in the 1960s and 1970s, they’ve taken millions—not thousands—of bad jobs and made them good.

It’s when workers lose power that good jobs turn bad.

Eric Blair is the pen name of a union researcher and organizer.