Zeynep Ton | Rethinking What Makes a Good Job

Jennifer Tescher:
Welcome to Emerge Everywhere. I’m Jennifer Tescher, founder and CEO of the Financial Health Network. For two decades, I’ve worked with leaders across industries to answer one central question; how can we make people’s financial lives better? Now I’m sharing these conversations with you. Listen in to hear how these visionaries are rewiring our society to support financial health for all. 

2024 marks the 20th anniversary of the Financial Health Movement and of the Financial Health Network. And as we’re reflecting on our 20-year history, we’re also thinking a lot about the future and the headwinds and tailwinds that will impact financial health. In this episode, we’re focusing on the workplace. Work is really where it’s at as it relates to financial health. It’s where people get paid, it’s where they get many of their benefits like health insurance, retirement savings. And it really matters how employers create jobs that can both improve the lives of their workers and do right by their company’s bottom line.

Joining me for this conversation is Zeynep Ton, a professor of operations management at the MIT Sloan School of Management, and co-founder and president of the Good Jobs Institute. For nearly 15 years, Zeynep has been focused on how employers can redesign their systems to increase productivity and customer satisfaction, and reduce worker turnover. She’s had the opportunity to test her ideas at a range of companies, including some of the largest like Walmart and Sam’s Club. And what she’s found is that while pay matters a lot, it’s only one ingredient in the good Jobs formula. Zeynep Ton, welcome to Emerge Everywhere.

Zeynep Ton:
Thank you so much for having me, Jen.

Jennifer Tescher:
Absolutely. You’ve been researching and writing on the topic of good jobs well before it was in every headline. In fact, you published your first book, The Good Job Strategy, a decade ago. What was it that brought you to the topic in the first place?

Zeynep Ton:
It is interesting you ask that because I am not a jobs person. If you look at my background and where I work, I am an operations professor at MIT Sloan. So, I’m at a business school and my field is operations management. 25 years ago, more than 25 years ago, I started doing my research in retail operations. And I joined a group of researchers and we had a project called Rocket Science Retailing. And the objective was to use data and smart algorithms even then in late ’90s to help retailers maximize profits. And during that time, one of the things that we have found was that retailers were leaving a lot of money on the table because of poor store execution.

So, oftentimes, they would get the right product to the right store at the right time, but the product in the store would be in the wrong place. So, customers would experience a stuck out, or their inventory data would be inaccurate, or their shelves will be too long. So, there were so many operational problems inside retail stores. And my initial research was on quantifying the magnitude of these problems and seeing how much it hurt companies. And then when I looked into why do these problems happen all the time, a huge answer lay in labor practices. So, stores that had more employee turnover had more problems. Stores that were more understaffed, had more problems.

And very early on I saw that, wow, these companies, they’re not spending the money on people. They’re paying their employees very little, giving them unstable schedules. So, they’re not spending the money on people, but they are spending the money on high employee turnover costs. They’re spending the money on low sales, they’re spending the money on low productivity, they’re spending the money on all the high product costs. So, that realization is what brought me to study good jobs, and good operations, and high performance all at the same time.

Jennifer Tescher:
That’s so interesting because one of the directions you could have gone in would’ve been a much more traditional HR strategy. “Oh, if we only trained our workers better.” Or, “Oh, if we only set up our job descriptions better or we hired better.” But you went to something bigger, frankly, than that. How did you get from, “Our stores aren’t well stocked,” to good jobs? Let’s be honest, most retailers don’t ever pay very much.

Zeynep Ton:
Yeah. I’m a student of quality management. And Dr. Deming taught us from his work that when there are problems, first you look into the system for those problems, not to the people. Oftentimes, our tendency is to find we would solve the world if we just train people better, if we just gave them better incentives because the problem is with the people. But my operations training had me think about that system. What is in the system that’s preventing employees from doing their jobs well? And it was both pay. It was on stable schedules and so many other things, but it was also their work. Their work wasn’t designed so that they could thrive in front of the customers. They didn’t have enough time to do a good job. They weren’t given decision rights, couldn’t make even the easiest decisions for their customers, which made them feel like idiots in front of the customer.

Like you’re at the checkout and there’s a very easy exchange or some easy question the customer is asking you. You have the answer, you know the answer, but you’re not allowed to solve that problem. Which makes the person feel bad about their jobs and they look bad in front of the customer, and it makes everything a lot more inefficient as well. So, there’s that lack of trust. So, there were so many elements that you couldn’t say it’s one or two things, we need to figure out how to create a better system.

Jennifer Tescher:
I love that it really dovetails with how we think about financial health and how it’s often a systemic issue. Certainly people make choices and decisions, and they behave in certain ways every day. A lot of that though is a function of the system in which they’re operating in, the choices that are available to them, the way things are structured for them. And so, I love this focus on the system as opposed to putting all the onus on the person. Given that, how do you define what a good job is? Or maybe it’s easier to talk about what the world of bad jobs looks like.

Zeynep Ton:
Yeah, And I’ll even define that in the context of not just a worker, but in the context of what is a good job for both the worker and the company? Because for a job to be a good job, it needs to be sustainable both for the worker who holds that job and the company that provides that job. And part of it, a huge aspect of a good job has to do with financial health. Absence of sufficient pay guarantees high employee turnover in organizations, and absence of sufficient pay guarantees a bad job. Because when you can’t put food on the table, no amount of meaning belonging this and that is going to help if you can’t put food on the table and you don’t have agency over your life.

And for companies similarly, when employees are not paid enough and they can’t take care of their families, they have financial insecurity, then that shows up in many ways. One is oftentimes workers will have multiple jobs, which means that they’re going to have more attendance problems, they’re not going to be able to focus on the job. And we know that lower pay is associated with all sorts of physical wellness issues, physical health, and mental health, and cognitive functioning. Low pay is equivalent to losing 13 IQ points. So, pay has to be part of a good job, both for workers and the companies. But then the question is, how can a company sustainably create well-paying jobs so people can take care of their families when they have low profit margins, where they have tough competition, and where it really matters to their customers that they provide low prices.

And this is where the operations angle comes in. The work has to be part of a good job because that work not only needs to provide motivation for the employee, but that work also has to be highly productive work to enable the higher pay. And to enable the higher pay, and also to enable better schedules, stable schedules, which is a huge part of a good job for frontline workers and service industries. So, I think about the good job in terms of both the company’s and the worker’s perspective. And it has to combine both that investment in people in terms of pay schedules, and work that is highly productive and work that is motivating.

Jennifer Tescher:
I want to get into what’s improving out there. But before we do that, on the topic of pay, since it’s so central and important, I wonder if you have a perspective on how employers should be thinking about what good pay looks like. Is it a living wage? There are a number of different standards, if you will, out there. How should they be thinking about that?

Zeynep Ton:
Yeah, I can first start with how they are thinking about that and then get to how they should be thinking about that. Because we’ve taught generations of leaders for a long time that market pay is the right pay. And when you look at frontline jobs that the type of jobs that I study, and these tend to be in lower wage settings, these tend to be jobs oftentimes in the service industry, but not just in the service industry, but in places like retail stores, hotels, restaurants, call centers, nursing homes, factories, these are very important jobs, but a lot of people can do this work. So, there’s a high supply of labor. And if the tendency is market pay is the right pay, that market pay ends up being unlivable pay because there’s a big supply of labor

And low pay ends up having all these consequences, negative consequences that we just talked about. So, leaders need to shift their mindset from just market pay alone to living wages or what enables financial security, frontline employees. I mean, Aetna, I remember and PayPal did similar things. It’s not just a living wage, but having some net disposable income in addition to a living wage. So, it’s helpful to think about that, especially for full-time workers. There are part-time workers who are there for pocket money, but for full-time workers who are there for their livelihoods, we need to look at it at a minimum. Are we enabling people to be able to take care of themselves and their families?

Jennifer Tescher:
So, it sounds like when you work with companies, you’re not just encouraging them to increase their pay, or improve their benefits, or improve their scheduling systems. You’re really encouraging them to re-engineer the jobs themselves and the way work gets done. I wonder if you could talk a little bit about where you’re seeing improvement in the marketplace where there are still gaps. And maybe you have an example of a company or two that you’ve worked with that you think are worth highlighting.

Zeynep Ton:
Yeah, I mean, I will be happy to take you through an example and the nonprofit Good Jobs Institute that we have worked closely together. We have now worked with more than 30 companies in a wide range of industries, from call centers, to retail stores, to pest control. And we have not examples of companies that were able to adapt what we call a good job system, which is a combination of investing in people and their work, highly productive, and motivating work to improve the value they offer their customers, to improve productivity, and to improve turnover and the lives of workers. And I will give you one example of a company that did that. And the key though is to recognize that it’s not just one thing alone that’s going to fix the system. We have to look at it from a systems perspective, which requires a lot of imagination and courage.

So, I’ll give you one example. In 2017, John Furner became the CEO of Sam’s Club, which is Costco’s competitor. It’s a membership based retailer that offers… you have to pay to become a member and you expect low prices. And at the time, Sam’s Club was way behind Costco in terms of labor productivity, their sales, customer satisfaction, and employee turnover, and their pay as well. And John is Sam’s Club’s 14th CEO in 34 years. Which means that every three years or so, this company changes their CEO. So, he’s under tremendous performance pressure and short term performance pressure. But he had the courage to say, let me look in the system. If we have these problems with our customers productivity and turnover, it means that we have a system problem and we’re going to fix the system. And they made a bunch of changes that enabled them to fix their system.

One of those changes was pay. But how they thought about it was so different than what we have seen in so many other organizations that haven’t been able to do it. And I’ll give you the example. So, one of the early changes was to raise pay $5 to $7 an hour. Increase it by $5 to $7 an hour from around like $15 an hour for a specific group of workers, which was thousands of workers who worked in bakery, who cut meat, and who led teams. And when John and a few people on his team wanted to do this, HR came and HR said, “Don’t do it. Last time we raised pay, it didn’t reduce employee turnover.” Finance said, “Don’t do it. It’s not in the budget.” Because of course, pay alone may not reduce turnover. Pay alone doesn’t make a job a good one.

But John looked at it in a very different way. He said, “Well, we have to win with our customers, we have to provide great value for our customers, give them good service. We can’t do that if we don’t have a strong team that’s set up for success. We can’t do that if we have high employee turnover. So, we have to reduce turnover. And people are leaving for jobs that pay a couple more dollars an hour. So, we have to raise pay. Yes, pay alone will not reduce turnover, but what else do we need to do to both reduce turnover and make the increased pay pay off?” You see, he looked at it from a very different perspective.

And they raise pay, they created stable schedules, and they made a bunch of operational changes, which required a lot of hard work and bottom up work. They simplified their product portfolio, reduced the number of products, which made shelving faster, easier. So, that increased productivity, which paid for some of the pay raises. They use technology to improve work. They cross-trained employees. So, they made a bunch of changes. But together, the combination of work related changes and investment in people related changes helped them reduce their employee turnover 25% for hourly workers and even more for managers. Their sales increased 25% without opening more stores. Labor productivity increased 16%.

And within two years, this performance improvements then fueled more investment in people and put them on a virtuous cycle. And John got promoted to become the CEO of Walmart USA. So, this is one example of a company, a big company with a 100,000 workers and what they were able to accomplish in two years and get on a virtuous cycle. And I love this story because I think their success… and we have seen similar things. We’ve seen it at pest control call centers. And I hope their success will give permission to others or make it easier for others to make a case.

Jennifer Tescher:
Well, I love that story. And in a way, I think you’ve just answered what was my next question, which was really about what’s the business case? In fact, your most recent book is called The Case for Good Jobs. You’ve just made that case very clearly, I think. I guess my question is, is that case sufficient to drive corporate action? It sounds like it requires, as you said, courage, it requires the CEO who gets it. Not everyone gets it. Do we need policy change here? Because the federal minimum wage is still stuck at $7.25 an hour, which is absurd. And I know a lot of states and municipalities have dramatically increased their wages. But is the case strong enough for business to do what’s needed? Or do we need something more?

Zeynep Ton:
Look, we have a huge societal problem with tens of millions of workers, most of whom we call essential workers during the pandemic, being left behind with unlivable wages and unstable schedules, and with little hope. They have desperation versus hope. So, we have a huge societal problem. And are business leaders going to be able to solve this problem on their own? I don’t think so. At the same time though, I don’t think we can solve this problem without business leaders either. Because examples like Sam’s Club, UrbanX, the other companies that we have worked with, provide courage for other leaders, but also show that this is possible to do without increasing prices or lowering profits.

So, that gives policymakers their success could give policymakers also the right to say, look, it doesn’t have to increase prices. Higher wages, like if we were to increase the minimum wage, it doesn’t have to increase prices if companies did this by increasing productivity changing in the work, it doesn’t have to reduce profits. And I don’t like to think about is it their job, or the policymaker’s job, or the union’s job? I think we all need to work together to create much better outcomes for our country. So, of course, policy has to change $7.25, I agree with you. It’s ridiculous. And yes, there are big costs of living differences across the United States. But $7.25 is just not a number that works anywhere in this country.

So, of course, policy has to be part of the solution. Worker voice, it’s becoming part of the solution. At business schools, we can probably teach our students much better as well. So, we all need to do our part to create a much better outcome for the country. But business leaders also, now that we have worked with so many, they operate in low margin industries with a lot of competition, and their job is not that easy either. I think it’s easy from our side to look at a company and say, “Oh, why aren’t you doing this? Why aren’t you doing that?” Well, it’s hard. And I wish we didn’t have to count on so much courage. And we had other policies that made this the status quo. If you can’t create high productivity, you won’t be able to survive as a business.

Jennifer Tescher:
When you see companies make and announce that they’re going to increase their minimum wage or their starting wage, and their stock price takes a hit as a result of that, you know that the incentives structure in this country is messed up.

Zeynep Ton:
Yeah, and it does. If you go back to the Walmart example, the first time that they raised wages was I think around 2015. And their stock price did take a hit. It was a hit for a very short amount of time. So, yes, it does signal that investors don’t value people investments as much as they value some other investments. But leaders can also create a compelling story about why they need to do this.

Jennifer Tescher:
Yeah. Yeah. Well, and it also just I think, underscores the point that lots of people are needed at the table, investors being among them to help them understand the same systems approach that you’ve described here.

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I want to talk a little bit about unions and worker power since you brought it up. Because along with good jobs, we are seeing tons of news about some of the pretty significant wins that labor has been notching over the last year or so. In part because the labor market continues to be tight, but also in part because I think people feel like they still can’t make ends meet and they are taking matters into their own hands. I’m curious, how important is pressure from workers in driving corporate action on good jobs? And have you worked with any companies that are unionized? Because I would imagine this is a much more difficult thing to tackle with a unionized workforce.

Zeynep Ton:
Yeah, we have not. Even of the companies that I’ve studied, the one that has a very small unionized workforce is Costco. But it’s only because at some point they both in another company and that company had their union. And other than that, we have not come across in the service setting of the companies that we work with. But in general, they could help. But I guess my work is very union agnostic because just the fact that there’s a union doesn’t guarantee a good job either. And absence of union doesn’t guarantee a bad job.

Jennifer Tescher:
Interesting.

Zeynep Ton:
I’ll give you one example. We talk about the good old days of auto manufacturing, where the pay was very good, the benefits were quite good, turnover was low, but the work was mind-numbing work. And you turn the same screw over and over. And there are people would drink on the job, they would have depression problems. So, the presence of union is not sufficient to create good work. If the union works very nicely with the management, then that’s possible. So, the great example for a long time had been UPS and Southwest Airlines. Southwest Airlines is a highly unionized company and they have very strong relationships. Union lets them cross train workers. So, there are multiple jobs that provide flexibility. So, it’s not the absence or presence of union, it’s how that union works with management that determines how good the outcomes are for the workers and for the companies.

Jennifer Tescher:
Yeah, that’s fair. All this talk of increased productivity as being part of the case makes me immediately think about AI. AI and the future of work and the future of jobs. Because one of the, I think, highest and best uses of ai, at least in the near term, is to increase productivity, to take some of the tasks that a computer can do faster and better, and allow the worker to focus on the thing that as a human, they can do better. So, what impact do you see AI having maybe today, but particularly in the future as we’re thinking about good job? Maybe the question is less good job and will there be any job?

Zeynep Ton:
Yeah, I think what AI, or robots, or any automation does to work, workers, and companies is really up to us to determine. AI doesn’t happen to us, technology doesn’t happen to us. We have agency to shape technology. So, I’ll go back to the Sam’s Club example. And use right in a way that improves the customer experience, and improves productivity, and improves the job themselves. AI and technology robots could be our friends and could enable good jobs. By the way, I haven’t come across any economists, or at least in my institution that is worried about the number of jobs in the future. And that is because if you look at demographics, people are having fewer kids. We have an aging population. If anything, their worry is that there won’t be enough workers to take the jobs that we will have.

So, the number of jobs, is not our worry. But what do those jobs look like? What is the role of humans? So, Sam’s Club, one of the reasons that they were able to create much better jobs for their workers and better outcomes for their customers, one thing was using technology in a brilliant way. But their mentality again was not to say, where do I substitute people? It was how do I improve the customer experience? And how do I improve productivity and jobs? If that’s our mindset, that’s our mental model, that we are going to use technology to improve the customer experience and productivity and jobs, then I see technology as a huge friend to good jobs.

But if the mentality is the mentality that we see in a lot of places that labor is just a cost to be minimized. And one way we’re going to get rid of the labor cost is to use a technology or robots, AI, however form of technology we use it, then that could result in some technologies that don’t even improve productivity, that don’t improve the customer experience, oftentimes make the customer experience worse. And that’s not a useful or powerful use of technology.

Jennifer Tescher:
So, I understand that some of your ideas about the importance of workers and worker engagement came from your college volleyball coach. Is that right?

Zeynep Ton:
I feel so grateful to this country, to the United States, because I came here on a volleyball scholarship.

Jennifer Tescher:
Really?

Zeynep Ton:
So, I had a free education here. And that’s one of the reasons that our Good Jobs Institute, the work that I do is my way of paying back and doing my part. But it was-

Jennifer Tescher:
Who did you play for?

Zeynep Ton:
Penn State. Penn State is who I played for. And volleyball is a total team sport. You depend on each other to win and to do well. And I had the privilege of playing for Russ Rose, who coached Penn State volleyball for more than 40 years. And he had seven NCAA championships when he retired. And he was the winningest coach across all NCAA sports with 1,300 or something wins. So, when you look at what was his secret to his success, what you find is what you see in a lot of successful companies. Amazing discipline, focusing relentlessly on the fundamentals of that business, and having a stable team and having high expectations.

So, we did the same drills. We did them over and over again, and they were all on the fundamentals. So, we had that flexibility to change game plan. Every game was a competition. We had such a stable team, no player that I can think of in my four years left our team to go play for another team. This is the employee turnover, because coach really leveraged each one of us and enabled each one of us to come to the best. I’m 5’10, I’m not that tall, but I was a starter and we made it to the final four. I could have never played for somebody else. And he had very high expectations. Your position was never guaranteed on the team. Every practice was competition.

So, these things related to discipline, stable team, high expectations they’re not just coaches formula. I see those as this formula for success by a lot of companies. To be able to win, you have to have a strong team that’s set up for success. It seems obvious when you say it that way, but so many companies think that they can’t afford to create that team to their detriment.

Jennifer Tescher:
Well, I suspect there’s an interesting conversation to be had at some point at another time with you about paying NCAA athletes. But that’s another conversation for another time. As we close this conversation, I wonder if you could share what should someone do if they’re listening to this podcast and they’re motivated to take action in thinking about how they can create good or better jobs at their company? What’s the first thing they should do besides read your book?

Zeynep Ton:
Yeah. No, I’m a terrible marketing. I’m an operations person, so I will give a more operational answer than marketing my book. But oftentimes when companies come to us to Good Jobs Institute, and they do want to create better jobs, and they think about, “We need to improve schedules,” or, “We need to increase pay,” or some initiatives that they need to do. And oftentimes our first step is to say, but what problem are you trying to solve? What is the problem? Because that problem needs to be framed in the context of customers productivity, turnover. And it’s not easy to frame that problem.

So, first is to identify what problem are you trying to solve in the organization? And what needs to change to be able to solve it? Because chances are it’s not going to be one thing. And if you look at just that one thing alone, making a financial case for that one thing might be very complicated. But if you are more problem driven, then there is more motivation to solve that problem and get to what changes have to take place. Because a lot of leaders in companies are already action oriented. They want to do this and that, but just to step back and say, “Yeah, what problem are we trying to solve? Why is that problem important to solve for our company? And how does this help?”

Jennifer Tescher:
Excellent. Well, I encourage everyone listening to step back and try to figure out what their problem statement is, and then call Zeynep for her help. Zeynep Ton, thank you so much for joining me on Emerge Everywhere.

Zeynep Ton:
Thank you so much for having me, Jen. I enjoyed our conversation.

Jennifer Tescher:
Me too.

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