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

Welcome to The Flourishing Edge, the podcast where we share weekly tips on making flourishing your competitive edge. I'm Ashish Kothari, your host, and each week we'll dive deep with flourishing experts, changemakers, and executives to share best practices that can help you unlock higher performance through science-based interventions. Let's step together into the edge of what's possible and live, work, and lead with more joy, health, love, and meaning. 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 at Podcast, I sit down with Zeynep Tawne, 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 an 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, you know, I have been such a big fan of yours. You know, I started Happiness Squad 3 years ago with a mission to democratize flourishing, to help a billion 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 6, 9 months ago, and it was really, you know, 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 at a 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, you know, 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 are leading it. Huge fan. I wanted to start a little bit with the origin of how did you actually come to this? You know, 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 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 supply chains, you're obsessed with inventory management. And in fact, you know, let's take a grocery store, you know, what, what does the grocery store need to do really well from an operations perspective? They have to manage inventory 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 backroom, never shelved to the front lines. There were mistakes in shelving so that there were stockouts. That lost sales for companies. Expired milk was still on the shelves while good milk was in the back room, never, you know, get replenished. So, 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 lost productivity, lower labor productivity, they lead to lost sales, they lead to higher Inventory, you know, higher cost and the cost of 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 to have, you know, I have not 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, you know, single-digit margins, right? Razor-thin margins. You're managing people, you're managing inventory, fresh products. So, so it is a complicated operation. But 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, wow, 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. So when investment in people is low, when turnover is high, there is no way to hire the right people and to train them well. There is no way to set high expectations. There no way to hold on to strong managers. So what ends up happening is connected other decisions that create a very weak system. So, 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— I mean, 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 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 friend.

No, it was a great answer. And it really brings to life, right? Like you, you know, so many similarities, you know, in our backgrounds and our paths. Like you, I came to the country at 23 with really nothing more than $5,000 of a loan. I did 10 years of my work at McKinsey was operations, leading 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, you know, 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, you know, the stat that's in your book, right, that you talk about, it 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, you know, our whole thesis when we talk about is we 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. Thank you, Ashish Kothari. Thank you. You articulate this so well. I am a student of Toyota Production System. Which in my world is still the gold standard for operational excellence, right? There are so many books, articles written about Toyota Production System. Before I started teaching operations in 2002, I did my first Toyota factory visit because my mentor said, "You cannot teach operations 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. Absolutely. 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. 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— 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, 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, you know, who talk about Toyota, so many leaders who implement Toyota Production System fail to realize that really important element 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.

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. You know, 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, you know, make that engine or to 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— when they're not dealing with all the other stresses in their life, but also they feel empowered, that they're valued, and they feel, you know, they can make the actions happen, right? They can make the change happen.

Absolutely. And you alluded to continuous improvement ideas from workers, Ashish Kothari. So one of the things, obviously, my research has been more on the service sector, not in manufacturing. And when I looked at companies 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, so their starting point is companies win by continuously improving the value they offer their customers. That's, that's the best way to grow profits. That's, 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 founder of— co-founder of Costco, or, or, or QuikTrip CEO, or, or, or the CEO of Four Seasons Hotels, that mindset was so ingrained in them that the best companies continuously improve the value for their customers. And the only way to do that is by, 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, 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 They go to pay and they stop. But I think what you highlight 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.

You can't pick and choose. And it can't be just pay, it can't be just training, it can't be hiring. We need to understand that system. And one is, so that system that I first observed at Costco, QuikTrip, which is a convenience store chain with gas stations, Trader Joe's, and Mercadona, which is Spain's largest supermarket chain, consists of two 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 4 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. 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, you know, each one of those systems in a little bit of detail. So, let's start with the second one first, which is, you know, 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 want to go there first because, to some extent, this is the value creation engine. 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. And this episode and this conversation is just not to 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 will see a lot more companies doing it. Absolutely. Right? That is— so, okay. 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. I love that term. So, so for Costco, their focus is highest quality merchandise at the lowest possible price. That is, 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 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, so, so that's the focus part and simplification is You know, 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 know, you simplify their work so that they can focus on serving the customer and make those decisions in a way that enables the frontline to have a smooth workload so that, you know, there aren't so many ups and downs. Those of your listeners who studied Toyota Production System would know that Heijunka level production is a huge part of Toyota Production System. So focus and simplify is that way. So, so how does this work? 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 shout faster. They will match people at the checkout faster because of fewer products, because of totally focused. And I'm not knowledgeable about the products and services that I offer. If I'm Thinking about 40,000 SKUs of products in a store versus 4,000, 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.

You know, 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. Implicit with was also was complexity. You know, how do you simplify this long tail of SKUs? And I think there is so much that, you 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 is the incremental cost and hence the benefit, the profits. But I think what you highlight on intelligent lost 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've 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 don't have— or you drive promotions or you do more discounts. So, or you open more. So, so 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 you don't have a value proposition. One of the companies that adopted the good job strategy later on, they started in 2018, was Sam's Club. And Sam's Club was in 2017, when John Furner became the CEO of Sam's Club, they were in a vicious cycle. They were, you know, high— 60% employee turnover, low same-store sales growth, low productivity. And when you compare them to Costco, they were way, way behind. Now, what had they done over time? They had started with about 3,500 SKUs, 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 SKUs as opposed to 3,500 where they started. They added a lot of promotions to drive traffic, 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 9 different membership types. So this is such a— adding more is such a tell 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 reduced variety, they reduced promotions, they reduced membership types. And I'll tell you, those were the scariest changes because focus, as you would know better than, you know, 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, which is where the systems piece really comes in.

Yeah. And I think that's what I love about this work, right? And I think you say it, 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, 2, 3, 4+ 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." You know, 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 go 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.

Yeah, it is. It 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 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. That was their clear value proposition. Then they said, what does it take to achieve this? Beautiful. Our front lines have to be able to shelf 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. 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 focus and simplify, but it was only one of the things.

One.

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. Yeah.

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

Yes, standardize and empower. And 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, you know, 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 in, you know, we live in Cambridge, People's Republic of Cambridge. So many years ago, you know, you have to buy these shopping bags from Whole Foods and then they give you back like $0.05 every time you use them. They don't use plastics. They don't. So I bought this shopping bag. It was $5 or $3.50. Apologies. And after the first use, my shopping bag, the handle broke. So 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, okay, it took several minutes, but it's wasting that employee's time, that supervisor's time, my time, all the people at the checkout. Totally. So this is the example of that. If this happened at Trader Joe's, they would have changed it in a second, right?

No problems. Here it is.

We gonna make it happen. 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. 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.

A stable workforce.

So a 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 standardize and empower part of the Good Job strategy.

Yeah. And you know what's amazing about that part is, you know, we always think about, you know, people think about many people have continuous improvement. You know, they've done lean, they have continuous improvement. They're like, yeah, 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're 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.

Yeah, and that's why, I mean, if you look at Costco, Mercadona, Trader Joe's, QuikTrip, I mean, 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, you know, find ways to improve hiring practices. So 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. They're— totally. I mean, that's their edge and that continuous improvement from the front lines. I mean, imagine Costco has more than 200,000 workers. When you have 200,000 people who are contributing to improving the operation, How much better would you be than if you have a couple of people, you know, if you have 50, 100, or 200 leaders providing all the ideas?

Totally.

And you 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, you know, what customers are asking and communicate those ideas to the home office. But 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 3 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, 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. This conversation is brought to you by Happiness Squad, where we help leaders build new mindsets new habits, and transform their ways of working to truly flourish. If you're ready to unleash the untapped human potential in your organization and operate at your best, come visit us at happinesssquad.com and start your journey today.

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 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, 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, so cross-training is a source 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 task variety. I mean, organizational psychologists have shown this in so many different studies. Task variety gets to that. The trick about cross-training is to balance that flexibility and motivation with specialization. If 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.

Well, you know, 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 what— when I read this lever, you know, 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 kids take their— you know, parents take their kids for gym classes? It's in the evenings. Yeah. 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. 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 3 or 4 people who run membership, the whole organization was about 50 people. You have 3 or 4 people who are driving membership for the whole country, for the whole sport. Think about their lives.

They're all getting it.

They're overwhelmed, they're overworked, and they're in the cycle of, well, who else would do it? You have 46 other people.

Yeah.

Right? 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 combined with standardize and empower and focus and simplify really allows us an ability to meet, you know, 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. You know, when you have a lot of work, Ashish, and I don't, you know, I can come and say, Ashish, let me take that off your plate. So it's the surge 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 altogether, operate with Slack leads to this too, is ownership. Ownership of your work. Improvement. And I'll give you one example of one of my favorite meat managers from Costco. You know, 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, and 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 8 pounds of meat every week to shrink." that costs 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 really owns his, 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 a certain number of SKUs. So he can really focus 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, improving that, that, 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, but 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, oh, 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, you know what? He gets zero performance-based bonus. And then they're surprised. How can he, can he be so motivated without that? And then I get into, well, 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. Yeah. So, so anyway, that ownership, the ownership part is huge. And when you have, again, employees who are like that, I mean, how strong would that business be? There's no, there's no wonder why Costco stock price, if you look at it from 1985 when they went public to now, it grew at a compounded annual growth rate of 18%. Compared to S&P's 9%. 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 going to plug I'm going to plug people here. Here's my demand. I'm going to plug people. And it doesn't matter how many hours I'm giving them, right? Because I've got this space. 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, a 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. 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.

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 QuikTrip, every store manager has to come from hourly. McDonald's is the same way. So Toyota is the same way. So of course, that cross-training along with the other stuff enables that promotion from within.

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

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

Oh, 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. I mean, one of the phrases I really hate is lean and mean is efficient because lean and mean isn't efficient. Yes. 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 with slack 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, 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. That operate with slack requires a high-performance system. People like Todd who are ready to go to work every single day. But when companies operate with slack, not only do the frontlines do a much better job and improve, but the managers, the frontline 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. Because I've seen in so many environments when there is no Operating with Slack, somebody calls out or there are so many customers, now the managers are doing the work. They're not leading people. They're not thinking about improving performance. They're just firefighting and doing the work. And what a waste that is. So, yeah, so it's a huge part of the Good Job Strategy and it has the most number of prerequisites. So, when we work with companies, we say, if you have, like, if you have a system problem, adding more labor is not gonna be the answer.

Yeah. You know, this one definitely struck a chord with me and it was, I can see so many parallels from all the other fields that I've looked at. So, first, if you're a manufacturer, you 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 know, you're going to grind the thing to a it will break down, right? And you have huge—

Any variability in your system, you know that that's gonna 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 frontline supervisors and managers, they don't have that type. 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. 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 of the hospitals in which they worked. 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, you know, with AI, with the productivity, and that's actually becoming possible now, people are not taking that and saying, oh 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 gotta push more work down. And they're not realizing the impact of not operating with Slack.

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 improvement. So when these companies think about AI or automation in general, they think about how do I maximize that value to the customer? How do I enable my employees to be more productive? That, 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, or how do I replace people?

How do I replace them? I'll give you one example about AI. From QuikTrip, the convenience store chain with gas stations, versus Amazon Go. Do you remember Amazon Go?

Oh yeah, of course.

Amazon Go, the premise was— I mean, their objective was let's operate stores without people, right? That was, let's, let's remove all the people. They had the videos, the cameras all over to, to track movement. I mean, amazing technology and, 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, and I think that was a great example of seeing labor as a cost and substituting people with technology. Now, QuikTrip, another convenience store chain, is now using AI for similar things. They want, when you go to the cash register, they want with 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 QuikTrip told my students, he 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. Absolutely. It's a very different orientation to technology and they're winning with their customers and others aren't.

I think, and 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, right? 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 like, you know, 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, right? That's a very clear model, you know, 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 4.5 years, right? 4.5 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. That's the first, right? You're actually taking a massive 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 2X because I've taken out work, which means our value can go so much further. And I think that's a counterargument 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 come beat you at it.

Yeah. And you've now created trust in your organization. I mean, 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.

Layoffs.

So you end up doing it because others are doing it. Imitation is, is a huge thing. 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 gonna do a layoff from improvement, right? We're gonna do anything possible before we lay off people.

Yeah.

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. I mean, during, during COVID we saw which companies were the first ones to let their people go and which ones said, we're gonna, we're gonna stay as long as possible and we're gonna do everything.

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

Yeah. And of course, this is a business. The survival of the business is really important, but we are gonna do everything possible to, to, to, to make sure that We take care of our employees.

And they're the ones who won.

They're the ones who won.

You know, I had the CEO of Liberty Energy, who's now our 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 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. 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. 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 3 or 4 elements in the people part of the system that allow the others to work.

Excellent. So we have the 4 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, standardize and empower, even simplification. But then we miss the secret sauce, secret enabler, which is investment in people. So I'll focus on 4 things related to investment in people. The first is pay and benefits, which is— I didn't understand, Ashish Kothari, how important pay and benefits 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 players who have high employee turnover, who operate in a vicious cycle. So for Costco, Mercadona, for QuikTrip, when they think about pay, they're thinking about, is it gonna 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, you know, there are so many components, so many nuances to pay. It's not just starting pay. There's a pay progression, etc. But the first element is that pay 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.

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. So that's how important pay is. At QuikTrip, 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, you know, pay is one of the elements. Pay matters.

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 going to talk to the CEO of Guild 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, 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 book.

Yeah. And I didn't understand how important it was until I started working with companies and spending a lot more time with workers. 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. 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 a week. That doesn't do much. So, so the, 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, focusing, simplify, standardize, those enable the stable schedules. So, so, so, so those choices, the investment in people choices also require the operational choices. The third part is 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 3 investments. And 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 Absolutely. So high expectations is another employee investment. And it's not a dollars investment, but it is an investment that drives that high performance.

Yeah. You know, 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 the bed and says, 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 know, 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, you know, 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, you know, 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.

I absolutely do.

You create those conditions, you create the system, but you also believe in them.

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

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 Furner, 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've 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 Durkee, he did this in California first, in Southern California, and then in Central Florida. I'm, I'm about to write a, with my colleague from Harvard Business School, Janet, if you can write a case about Goodwill. And Ed Durkee 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 to 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.

I think that was such a wonderful email and a beautiful story. It starts with belief in your people, you know. And to that point, I want to highlight and I want to celebrate Bob Chapman. You know, he passed away a couple of weeks ago. Your work In the service sector, you know, in the retail space, Bob wrote a book called Everybody Matters. It's based on his journey as the CEO of Barry-Wehmiller 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, you know, 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 an 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. You know, I'm serving Conagra right now. They're a $10 billion organization. 85% of their people, people are in manufacturing frontline jobs. This work has the ability to turn our human assets in a moment where there are 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, you know, 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— 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.

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, uh, I got an email about him passing. So I'm still going to record the podcast. I'm going to do it without him, but I'm going to do it based on the book and telling the stories, uh, because I think it's truly an amazing example. And the lighthouses you've created, uh, 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.

Well, it's not me doing it, Ashish Kothari. It's those leaders, courageous leaders who do the work. I, I, I do the research and some encouragement, but it is It's 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, 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.

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