Money Matters

“The Right Thing to Do”

(Source: hbr.org)

Walmart has gotten a huge amount of negative publicity over the years for its low pay and benefits, which have forced tens of thousands of store workers to seek public assistance, and for the limited hours and life-disrupting unpredictable schedules it offers all too many of them. But the past few years have brought signs that the company is rethinking its labor policies. It has raised frontline workers’ wages (to an average of $13.85 an hour for full-time employees), improved benefits, expanded training, and made statements like “We are committed to unlocking the full potential of the U.S. retail workforce.”

Given that Walmart employees in many states still have trouble making ends meet, it has been hard to know how seriously to take these measures. Are they modest steps implemented to attract and retain workers in a strong job market and to burnish the company’s reputation to win customers who have shunned it for its HR policies? Or do they signal a sea change?

In this edited interview Greg Foran, the president and CEO of Walmart U.S., indicates that it’s the latter. A New Zealander who headed Walmart’s operations in China before assuming his present role in August 2014, Foran subscribes to Zeynep Ton’s Good Jobs Strategy. The GJS is a model for empowering and investing in frontline workers in retail and other service industries and revamping operations to support those workers, helping them be more productive and serve customers better.

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ABOVE: Courtesy of Walmart

A handful of other companies, including Costco, Trader Joe’s, QuikTrip, Mud Bay, Mercadona, and Quest Diagnostics (in its call centers), are pursuing the GJS. But if Walmart U.S., with its 1 million-plus employees and its clout in the market, continues down this path, it could prove a tipping point. Others might be inspired or compelled to follow suit, which would have an enormous impact on the U.S. economy, one comparable to Henry Ford’s 1914 decision to more than double the minimum pay of his workers, to $5 a day — a move that accelerated the expansion of the middle class.

HBR: In 2014, when you became the head of Walmart U.S., how were the stores performing?

FORAN: My perception of Walmart U.S. before I came here was that it was a really strong, vibrant business. But I wasn’t unaware that the financial results indicated that maybe things were not as good as they appeared.

So I started digging. What I found out, in no particular order, was that pricing wasn’t where we needed it to be. The stores weren’t where we needed them to be in terms of basic things like cleanliness and items in stock. The engagement of the associates [Walmart’s term for all its employees] wasn’t where we needed it to be. The supply chain wasn’t working as well as it should have been. Each rock I turned over indicated that our business was past its prime and starting to struggle. That was reflected in our comp store sales. Profits still looked OK, but profit can hide many sins; it’s what your customers and associates say about your business that indicates whether it’s vibrant and healthy. When you looked at that, it was clear we had some issues.

How did you think about improving performance? What did you do?
Having compiled a fact base, we had a discussion about the need to focus on our store associates. We were paying something like $7.65 an hour, on average, as an opening wage. But as you visited stores, met with frontline associates, and spoke with their managers, you could tell we were having difficulty attracting the right talent to apply for jobs, let alone holding people for any length of time.

That led early on to a board decision to invest more in our workers. We took a pretty bold step, putting about $2.7 billion over a couple years into higher levels of pay, benefits, and training. We knew we also had to address price and remodel a number of stores. We went to Wall Street and said, “If you give us a breather on the bottom line, we’ll deliver an improved top line. But it won’t happen in a year; it’s going to take three years.”

We did a number of things: We raised our minimum wage; started to deal with things like paid time off and benefits; introduced “academies,” which are dedicated facilities where associates in roles such as frontline supervisor, department manager, and assistant manager receive training in retail fundamentals and area-specific skills; changed the way people work in stores by introducing more digitization and increasing their access to information; changed processes — a whole bunch of things. By and large, that’s working for us. It fits pretty well with the Good Jobs Strategy, because all the way through we’ve tried to simplify the business, standardize work processes, and empower associates.

We call our approach to achieving that One Best Way. We have one best way for managing inventory, one for scheduling, one for setting shelves, and so on. Standardization creates efficiency. Getting routine tasks done faster lets associates spend more time serving customers. We’ve still got work to do on cross-training so that associates can perform a wider range of tasks, and on operating with slack — staffing stores with more labor hours than the expected workload calls for. But our journey is well under way, and it’s the right thing to do.

How did you hear about the Good Jobs Strategy?
About a year into our work one of the consultants I use, who challenges what I’m doing and how I’m thinking about things, said, “I came across this book, The Good Jobs Strategy.” I took it home and read it over a couple of days. It resonated with me. I thought, This is so blindingly obvious: If you simplify operations, standardize work processes, and empower your employees, you will get better results. I particularly liked the empower process. Just standardizing isn’t good enough.

I’ve been working in retail for 40 years. If you don’t give people some surety around how many hours they will be given and what their schedules will be like, you create problems. I’ve watched businesses I’ve been associated with do things like cut people’s jobs back so that they get three hours here on Tuesday and four hours there on Wednesday. You can address that through cross-training so that when there’s downtime in one type of job, people can perform another. When I read the book, I went, “Bingo!” I called Zeynep — I didn’t know her — and asked if we could get together. A few weeks later I went to Boston and spent the day with her, touring stores and talking about the ideas in The Good Jobs Strategy and the things we were doing at Walmart.

Zeynep and I have continued talking, and I’ve encouraged my team to think about ways to adopt elements of the strategy, in terms of both how we talk about it and the process itself.

You described at a high level where you are. Could you be more specific about things you’ve done to improve the customer and employee experience and operational performance?
Let me begin at the end. It’s been good to see progress. But to some extent the low-hanging fruit has been gained; the hard work now begins. That’s what I see when I walk around our stores and distribution centers, and it’s what I hear when I talk to our customers and associates. We’ve done some really good foundational things. But over the past three years we’ve been fixing, and now we’re starting to talk about leading. “Fixing” is about getting the basics right. “Leading” is about how we can exceed industry standards rather than simply meet them. When we think about moving from a mindset of fixing to one of leading, we mean the ways in which Walmart will define the future of retail by continuing to transform how we operate and innovate.

In terms of the fixing part: Our stores are cleaner. Food is fresher, because we’ve made changes like reducing the amount of time products spend in the supply chain. Our associates have better tools. For example, they were using a Telxon — a wireless barcode scanner for checking prices and managing inventory, which has been around for a long time. They’ve now got TC70 handheld computers, and we’re looking to move to even better technology. The customer experience has significantly improved because of the actions we’ve taken: remodeled, cleaner stores; better-trained associates who can serve customers more effectively; better in-stock positions; and the ability to get through checkouts quicker.

In terms of the associates, there’s a better induction process for new hires. We rolled out a program called Pathways, which gives entry-level associates training and mentoring over their first few months. It’s designed to teach skills crucial for retailing, including customer service, merchandising, teamwork, and communication. After successfully completing the program people receive a pay increase, information about the career paths available to them at Walmart, and a clear picture of what experiences and skills are required to grow with the company.

In addition, we have better training in how to use metrics and leverage the available information to help serve associates and customers. Every manager now has the ability to get into significant people metrics — such things as the number of open positions, turnover rates, who’s completed training, and who’s due to be trained. Finally, we’ve established 200 academies, where the training lasts anywhere from two days to a week. About 250,000 associates will have been through them by the end of the year.

Something else I’m really proud of is that we’ve improved what we call My Share. All associates have the ability to earn a bonus. And as you can tell from our latest earnings report, we’re doing better financially. That means associates in more and more stores are becoming eligible for a bonus.

Were your actions driven by intensifying competition from online retailers? Or because Walmart has saturated the U.S. market with stores and therefore has to get more out of its existing stores? Or both?
Both. Three and a bit years ago Walmart was at a crossroads. We could demonstrate to the market that we had growth opportunities, or we could continue to concentrate on a bottom-line profit. That’s a nexus a lot of businesses find themselves in, not just in retail. We made a decision to grow the top line. Part of that would involve developing an e-commerce offer, and part would involve getting more people visiting our stores and putting an extra item into their basket. If you’re a shareholder, you’re not looking just for bottom-line profits; you’re also looking for long-term growth.

There’s a second component, which to me is even more important: the DNA of Walmart. If Sam Walton [Walmart’s founder] were here today, he would be incredibly disappointed if we weren’t doing a good job for our customers and associates. I know that not because I’ve met Sam but because I spent 12 years with Jack Shewmaker, one of his lieutenants. Jack joined the company when there were only 32 stores and ended up being number two in Walmart’s leadership structure. He was the smartest retailer I’ve ever met. One of the reasons I’m here is Jack; he was a mentor of mine before I joined Walmart. He taught me the value of looking after customers and associates. So there’s a personal component to what I do: I know that if you don’t look after your customers and associates, you don’t have to worry about the shareholders, because it’s just not going to work.

Here are the reasons you take on the kind of transformation we have: First, you’ve got to believe in it. Second, there’s absolutely a financial aspect. And third, you hate losing. Lots of people didn’t believe we could do this. They would say, “This isn’t going to work. You can’t get more people coming into the stores. Walmart is too big to change. It’s done; it’s run its race.” All that did was make me determined to prove them wrong.

What has been the impact of the steps you’ve taken on turnover, absenteeism, morale, productivity, and customer satisfaction?
I believe in the Good Jobs Strategy. I also believe in Net Promoter Scores. Plenty of good businesses have really good Net Promoter Scores. They didn’t get them through luck. They got them by working hard. We’ve significantly improved our Net Promoter Score. In fact, I was told by the chap who coauthored the score that he’s never seen a business our size move as quickly as we have in the past three years. So customers are noticing.

In terms of associates, we are still early in the journey. I’d like to tell you we’ve made massive inroads in terms of turnover and retention. But the reality is that we’ve bent the curve. We’re heading in the right direction, but we’re only about 20% of where we need to be.

How about productivity?
We’re now growing sales faster than costs; we’ve done that every quarter this year. There are other things I measure: What is our cost per case through distribution centers? How many units are we moving across checkout scanners? All those things are beginning to improve. We have definitely turned the corner; we’re starting to head north.

The Good Jobs Strategy is a system — a number of elements working together. Are you applying all the elements?
We’re rolling out many pieces. We were rolling out some before I read Zeynep’s book.

There is a wonderful quote in the book from Oliver Wendell Holmes Jr.: “I would not give a fig for the simplicity this side of complexity, but I would give my life for the simplicity on the other side of complexity.” A lot of people like to simplify things. But they get no prizes for doing so unless they have dealt with the complexity of the issues. I like to get into the details and understand them. Only when you have understood them and dealt with the complexity of them do you have the right to simplify. We do understand the system part of the strategy. There are bits where we are deeper in and others we’re still developing.

Were there elements of the system you had to do before you could consider tackling others? I’m thinking about what you’ve done with pay and benefits.
When I was 17, I started working full-time. I got bored with what I was doing in a store, so I decided to take some night school classes. I learned about Frederick Herzberg, a psychologist who looked at the factors involved in job satisfaction. He studied the industrial revolution and pointed out that it would be really difficult to motivate people to work in a factory unless you provided clean running water, warmth in the winter, cool in the summer — the basics.

What we did with pay addressed one of those basics. It was so visible. And while we will always have more to do in this regard, it gave people a reason to believe. It let us begin to do other things. It was a critical first step.

It sounds like Walmart is planning to implement the whole system. If so, what are the next steps?
We’re already doing a whole bunch of elements. We’re still learning about others. There is a strong correlation between what we’re doing and what Zeynep talks about, and there’s a pretty strong correlation between the way she thinks and the way I think. We’re going to continue talking, and as I mentioned, I’m encouraging my team to connect with her and to think about her approach more deeply.

Are you rolling out elements of the system together, or piecemeal?
We tend to focus on one element at a time. Our approach to developing and rolling out new ways to schedule associates is a good example of how we do it. We’ll put a new process into a store, start to work it through, and learn. Then we’ll roll it out to five stores and see what happens. Then we’ll take it to a region of 80 to 100 stores. Then, if we’re happy, we’ll start rolling it out across the country. That’s often how we introduce initiatives. It might also be how we will develop new apps and tools for the associates.

What are the biggest challenges so far?
The single biggest challenge is change and the fact that we’re doing something on a scale most businesses don’t have to deal with. Most major retailers — Costco, H-E-B, Food Lion — have 400 or 500 stores. We have almost 5,000. You can’t underestimate what happens when you go up by a factor of 10. An awful lot of change management and communication is needed to do anything at Walmart. You’ve got to get the army to march.The Big Idea

About the author: Steven Prokesch is a senior editor at HBR.

More Info: hbr.org

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