By Zeynep Ton
FIFTEEN US states have increased their minimum wage this year, with more on the way. In Seattle, for example, large employers will have to pay a $15 minimum wage by January 2017.
If a company raises wages, it needs to increase productivity, or either boost prices or lose profits. Simply cutting employee hours isn’t a viable solution. Companies that rely on understaffing to squeeze more profit out of fewer people will never achieve the high productivity and great service that creates customer loyalty.
So how can a low-wage retailer increase productivity? Here are three possible approaches.
- This can make sense in some environments, especially for routine information processing. But it’s a different story for retailers and fast-food companies—the largest low-wage employers. Robots aren’t good at social interactions or tasks that require dexterity, such as unpacking crates, shelving shampoo bottles, making burritos or arranging flowers.
- There are many ways to simplify processes in low-wage service settings. Perhaps the most significant is to reduce product variety within a category. My local supermarket has over 250 types of soup, over 50 types of milk and over 50 types of shredded cheese. As research has shown, customers are less likely to buy anything when there is too much choice and they are less satisfied with what they choose. Such variety also increases costs and decreases productivity.
- Improve work design. Many low-wage employees could work more productively—if only the company would let them. Standardizing routine processes and providing enough equipment, training and time would help employees do their work properly. Empowering employees to make simple decisions for customers would reduce the time spent on small issues and help ensure faster service.
Employees can help reduce costs. The Toyota production system is successful because those closest to the work are in the best position to improve it. They have the most detailed knowledge and the strongest motivation. If a company can create an improvement system with mechanisms to hear employees’ ideas (the easy part) and act on them (the hard part), costs will go down.
Zeynep Ton is an adjunct associate professor in the operations management group at the Massachusetts Institute of Technology’s Sloan School of Management.