The Ideal Factory: When (some) Principles Are Applied

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Please check out Neil Irwin’s excellent article entitled, “And in This Aisle, Higher Pay” in the Sunday, October 16, 2016, Business Section of the New York Times. (the obvious source and inspiration for this post)

 What happens when (at least some) Ideal Factory Principles are in place at one of the largest companies in the world? We need to look no further than Wal-Mart.

In last Sunday’s (October, 16, 2016) New Your Times’ Business section, Neil Irwin wrote an illuminating article about what happened when Wal-Mart used some of the principles

espoused by The Ideal Factory. Now to be completely honest, these principles were not conceived by my partners and me at 5i, the home of The Ideal Factory. Certainly others have adopted their use long before we did. Nor do we have any copyrights, patents, trademarks, or other claims to their origin. Neither does Mr. Irwin or the NYT identify The Ideal Factory in any way imagined or unimagined in the article. Hopefully, these statements will keep us clear of any litigation.

But…

These are core principles we have for The Ideal Factory…and so we want to toot their horn whenever possible. Especially if doing so will help advance those who work in manufacturing and raise customer value around the world.

So what are these revolutionary principles that transformed the world’s largest retail company and increased their customer’s happiness?

Are you ready?

They increased their worker’s pay and trained better.

 In early 2015, Wal-Mart was being crucified by its customer’s response to those invitations to express your thoughts that appear on the back of their receipts. Customers complained loudly about the dirty restrooms, inability to find someone to help them with questions, chronic inventory shortages, and of course, those infinitely long lines at the two open check-out lanes, while the other twenty-one remain aggravating closed.

In addition, apparently investors weren’t too pleased with the powers that be at Wal-Mart either. Amazon was pressuring and customers were starting to shop at their rivals. Also, for the first time in the 45 years since Wal-Mart went public, revenue fell. Money speaks, and since at Wal-Mart it appears to speak very loud, something needed to be done…and done quickly.

Wal-Mart CEO Doug McMillion (what a great last name) spoke to 1.2 million employees by uttering what I think is probably the best, most truthful, three sentences I’ve heard in business for a long time. “Sometimes we don’t get it all right. Sometimes we make policy changes or other decisions and they don’t result in what we thought they were going to. And when we don’t get it right, we adjust.”

 Now here is where Wal-Mart put their money where their mouth is. They built 200 training centers. Hourly pay was increased to $10 for associates who finished the training course Pay for department managers went from $12 to $15 an hour. According to Mr. Irwin’s article, “…average pay for a full-time, non-managerial position is now $13.69 an hour, up 16 percent since early 2014.” Now lest anyone believe this came cheaply, the price tag was $2.7 billion.

But what about those customer surveys? Did more money in the pocket of the associates and better training have any effect? Were the restrooms cleaner? Could you get your questions answered in a timely manner? And maybe most important of all, (at least to me), did those rows and rows of cash registers get opened?

Well according to Wal-Mart yes they did. Positive comments from surveys have been “rising for 90 consecutive weeks.” And, sales seemed to be positively impacted as well. Mr. Irwin’s writes, “…stores open at least a year, sales were up 1.6 percent over a year earlier in the most recent quarter…Overall sales at general merchandise retailers are down 0.4 percent this year compared with last, according to census data.”

Now to be honest, profit for Wal-Mart has not done so well. Mr. Irwin states, “Operating income for Wal-Mart’s United States stores was down 6 percent in the most recent quarter, reflecting higher labor costs and other new investments.

Mr. Irwin’s article closes by saying, “In the short-term, the Wal-Mart experiment shows pretty clearly that paying people better improves both the work force and the shopper’s

experience, but not profitability, at least not yet.”

Again, I ask everyone to read Mr. Irwin’s well balanced report on Wal-Mart’s experiment with higher pay for its hourly employees entitled “And in This Aisle, Higher Pay” as it appeared in the Business section of the New York Times last Sunday, October 16, 2016. It offers a look at what can happen when employees receive better pay and better training.