Latest Research

4 Posts authored by: Paula Klein
Paula Klein

The Good Jobs Strategy

Posted by Paula Klein Apr 3, 2014

Can workers actually be beneficiaries of the digital economy? MIT Sloan Professor Zeynep Ton believes the answer is yes. And just as importantly, she says, businesses won’t lose out in the process.download.jpg

 

Much has been written and discussed about the economic inequalities created as a result of digital technologies. In this blog, for example, MIT Research Scientist, Andrew McAfee, cites significant economic data supporting the view that IT is responsible for tectonic changes in U.S. jobs and wages. Professor Ton’s latest research offers some win-win scenarios for employees and their employers.

 

In a recent presentation, Ton, Adjunct Associate Professor of Operations Management (pictured at left), went beyond defining the problems of job displacement, dissatisfaction and despair; she offered solutions. Her latest book, “The Good Jobs Strategy,” examines ways to bridge some of the widely acknowledged economic gaps and suggests ways that organizations “can design and manage their operations in a way that satisfies employees, customers and investors simultaneously.”

 

Tossing Out Conventional Wisdom

Ton asserts that currently, one in four workers – especially in the service sector and retail—has a “bad job” where salaries are insufficient to support families, and work is rote, irregular and unsatisfying. In such environments, “workers are set up to fail.” But businesses and society fail as well, she maintains. “The conventional wisdom is that bad jobs are necessary to keep costs low and profits high. Even advocates for higher wages believe higher wages they will come at a cost—either higher prices for customers or lower profits for companies.”

 

However, better operational strategies can break the pattern, she says. It may be counter-intuitive, Ton explained at a meeting of the MIT IDE in March, but combining investment in people with smart decisions like empowering workers—not cutting back—often proves most profitable.

 

In case after case, she found that more and better-trained and motivated staff can generate higher profit and growth and help business stay ahead of competitors.

 

Zara, Mercadona and QT Find Win-Win Formulas

“It’s a virtuous cycle,” Ton says: “Good execution and good workers yield more profits.” For example, Zara clothing and the Mercadona supermarket chain, both based in Spain, are growing despite a weak economy. Mercadona offers employees twice the minimum wage, bonuses, stable work, full-time schedules and opportunities for growth.

 

In the U.S., QT, or Quiktrip, is an example of a convenience store/gas station company providing “excellent customer service, fast, clean facilities and a high employee retention rate. People want to work there,” Ton says, and store profits are above industry averages. Trader Joe’s and Costco are other good examples.

 

How do they do it?  Ton offers a matrix four strategies that need to be used in combination to reap the greatest rewards:

1. Invest in people and combine that with operational excellence to drive sales.

2.   Standardize processes to increase efficiency and empower employees to make decisions for customers

3.  Cross-train employees to encourage agility, flexibility and knowledge.

4. Offer fewer products, but operate with slack; never under-staff.

Ton sums up as follows: “In my book, The Good Jobs Strategy, I show that it is possible to offer good jobs to workers, low prices and excellent service to customers, and great returns to shareholders-- all at the same time. What makes good jobs not only possible but very profitable—even in low-cost service businesses—is a set of counterintuitive choices that transforms the company’s investment in workers into high performance. What are these choices? Offer less, combine standardization with empowerment, cross-train, and operate with slack. It’s a combination that lowers operating costs, increases worker productivity and puts workers at the center of a company's success.”https://mitsloan.mit.edu/newsroom/images/2013-goodjobs.gif

 

 

Biography:

Ton’s work has been published in a variety of journals, including Organization Science, Production and Operations Management, and the Harvard Business Review. In addition, she has written numerous cases that explore different approaches to managing retail stores and labor. Prior to MIT Sloan, Ton spent seven years as an assistant professor in the Technology and Operations Management area at Harvard Business School, where she was awarded the HBS Faculty Teaching Award for teaching excellence.

Ton holds a DBA from Harvard Business School and a BS in Industrial and Manufacturing Engineering from Pennsylvania State University.

As social media becomes more pervasive in business and economic life, many researchers are trying to figure out just how much impact it is having on sales and on business models.

 

Jeffrey Hu, Associate Professor at Scheller College of Business  at Georgia Institute of Technology, and an MIT Sloan alumni, is among those studying the effects of social media. In particular, he examined just how much online broadcasting channels and crowdsourcing are influencing markets and customers compared with more traditional marketing channels. “With the emergence of social media and Web 2.0, broadcasting in the online environment has evolved into a new form of marketing due to the much broader reach enabled by information technology,” Hu said.hu_jeffrey_profile.jpg1.jpg

 

Turning Buzz into Business

During 2008 to 2009, Hu studied the patterns of the MySpace music community, the largest at the time, with 14 million users. He wanted to know if broadcasting information via social media –sending updates, bulletins and texts (this was before Twitter really had a strong presence) would result in greater economic returns. In other words, he said at a recent MIT CDB lunch seminar, “whether buzz could turn into sales.”

 

Hu and his team employed a panel vector auto-regression (PVAR) model to investigate the inter-relationship between broadcasting promotions in social media and music sales. By correlating social media activity of 631 musicians for 32 weeks and comparing the data to Amazon rankings, Hu was able to see a significant effect on sales. The study accounted for control variables such as promotional spending, new album releases and size of network, among other factors.

 

The research concludes that artist-generated content -- particularly personal messages versus automated ones-- can increase sales and ranking on Amazon. By extension, Hu believes that companies can use social media to promote products and boost sales. “Our findings also point to the importance of conducting captivating conversations with customers in the organizational use of social media,” he said.

 

The Wisdom of Crowds

The second study Hu described at the seminar looked at the wisdom of crowds and crowdsourcing compared with expert advice and content online. Many people have pointed out that while Wikipedia contains errors, for example, it also can be corrected quickly from a vast range of sources versus traditional, permanent resources such as print encyclopedias. Some advocates believe that customers turn to peer-based communities, such as Yelp, for restaurant reviews over venerable sources like Michelin guides because the websites are more current, are more accessible and have wider coverage areas.

 

In his research of the financial analysis sector, Hu found that the online community Seeking Alpha--which relies on investor input instead of journalists or professional analysts-- has been “surprisingly accurate” in predicting financial trends and making investment recommendations.

 

Of course, there are also many caveats where enterprise social media is concerned. As McKinsey notes in this recent journal article, “on-demand marketing” is putting enormous pressures on businesses to respond in four key areas:

1. Now: Consumers will want to interact anywhere at any time.

2. Can I: They will want to do truly new things as disparate kinds of information (from financial accounts to data on physical activity) are deployed more effectively in ways that create value for them.

3. For me: They will expect all data stored about them to be targeted precisely to their needs or used to personalize what they experience.

4. Simply: They will expect all interactions to be easy.

 

Maybe the next studies will focus on how well social media can help achieve these daunting consumer demands.

 

 

For related MIT research about social advertising, see this blog describing Catherine Tucker’s research.


For  more of Jeffrey Hu's research, see the following abstracts:


http://ssrn.com/abstract=2201430

 

http://ssrn.com/abstract=1807265)

 

and his Georgia Tech profile here:  http://scheller.gatech.edu/directory/faculty/hu/

 

Most discussions and examples of business innovation focus squarely on the production side; how new products are created, built and marketed to improve efficiency and move the technology dial forward.

 

What gets lost in this classic view, however, is the human capital impact resulting from disruptive innovation, according to Michael Schrage, research fellow at MIT Sloan School’s Center for Digital Business. And, he asserts, that misrepresents innovation’s real role.

 

“Innovation is not just about faster, better, cheaper products and services, but an investment in the human capital and capabilities of customers and clients,” he told faculty at a recent lunch seminar on the topic of “Misunderstanding Human Capital,” at the CDB. “The transformative effect on human capital” is largely misunderstood or absent when innovation’s value is considered, Schrage argues. “Successful innovations transform users and customers” not just production processes, he asserts.

 

At the lively, interactive lunch session, Schrage noted that when Ford first mass produced automobiles he also facilitated “the mass production of drivers” – a form of human capital that hadn’t really existed before.

 

Similarly, Google created searchers, not just search engines, disrupting the way consumers interacted and adding value to Google’s algorithms. Walmart trained consumers to look for low prices, while Tesco focused on customer loyalty. Schrage wants to call attention to what he terms the “misunderstanding of mass production’s significance on human capital,” and to study the consequences – positive and negative -- of these actions on consumers.

 

This thinking borrows from two-sided market theory and platform economics where creation of one new market can lead to the creation of a new, complementary network such as iPhone apps, Schrage says.

 

Schrage’s latest research seeks to demonstrate that “consumptionary capital” is an important aspect of innovation that has been widely overlooked. In fact, technological innovation often creates and enhances human capabilities and increases competencies that can generate new business opportunities. Eyeglasses were technical innovations that made it possible and affordable for more people to read and see; hearing aids and cochlear implants were technical innovations that made it possible for more people to hear. They expanded the abilities and capabilities of their users to do and consume more, he says.

 

Schrage introduced his viewpoint in a Harvard Business Press e-book last year, Who Do You Want Your Customers to Become?  His premise is summarized by HBP as follows:

Asking customers to do something different doesn't go far enough. Serious marketers and innovators must ask customers to become something different instead. Even more, you must invest in their capabilities and competencies to help them become better customers.

A primary insight of the book is that innovation is an investment in your clients, not just a transaction with them, and that transforming customers will transform the business.

By addressing questions such as: How will skills change as a result of Google cars? How do innovations such as recognition engines and crowdsourcing impact consumer habits, behavior and income? How are new consumer norms created? –the research may help businesses better understand their customers. From that, they can adopt more meaningful marketing and product development plans that will yield more -- and more valuable -- customers.

 

Successful business innovators like Henry Ford, Steve Jobs and a Jeff Bezos, he argues, have clear visions of who they want their customers to become.

Whether you think it’s a good idea or not, mobile and social technologies are creating new ways to follow, analyze and predict how people are “embedded in society,” and how and where they spend their time and money. The implications of these changes for individuals, as well as society, are being studied by Alex `Sandy’ Pentland, director of MIT’s Human Dynamics Laboratory and the MIT Media Lab Entrepreneurship Program.

 

His current research examines four ways that Big Data can help to understand human behavior: By modeling social influence; by examining social influence dynamics; by actually shaping behavior, and by creating more data-driven societies.  Pentland hopes these insights may help reverse “many of the frustrating phenomena that we are familiar with....fads, groupthink, and projects that just go nowhere.”

 

The MIT researchers looked at social influence networks and their relationship to learning, purchases and other behaviors by following 65 young families for one year. One finding was that social influence incentives work to change behavior more than other incentives because in a group, members have common ties and an exchange network on which to rely. Local information can pressure peers to act in certain ways and to be rewarded for those behaviors. “Incenting the social ties can be efficient,” Pentland explained at a recent MIT CDB seminar.

untitled.bmp

 

In call centers, for example, productivity improves with more coffee breaks, because workers share information that leads to better performance. Similarly, “social traders who aren’t isolated and aren’t in echo chambers,” perform best, he said. The point is to “encourage diversity of ideas and engagement.”

 

The Human Dynamics Lab at the MIT Media Laboratories pioneered the idea of a society enabled by Big Data. The Lab has developed technologies such as reality mining, which uses mobile phone data to extract patterns that predict future human behavior, as well as a `nervous system’ framework for dramatically more efficient transportation, health, energy, and financial systems.

 

Pentland’s latest research could be applied to what he calls, “data-driven societies.” Since geography influences behavior and patterns of communications, which creates “collective intelligence” in local groups,” city-scientist, for instance, may be able to predict the GDP of a city by looking at social-tie patterns. In turn, this might help city planners build environments that better match the habits of the local citizens.

 

Separately, McKinsey is conducting research into social intelligence. In its new report, McKinsey discusses social intelligence as a means of guiding better business decisions.

 

The report states that by tapping into social platforms, businesses can gather and harness employee knowledge.

Today, many people who have expert knowledge and shape perceptions about markets are freely exchanging data and viewpoints through social platforms. By identifying and engaging these players, employing potent Web-focused analytics to draw strategic meaning from social-media data, and channeling this information to people within the organization who need and want it, companies can develop a “social intelligence” that is forward looking, global in scope, and capable of playing out in real time.

This isn’t to suggest that “social” will entirely displace current methods of intelligence gathering. But it should emerge as a strong complement. As it does, social-intelligence literacy will become a critical asset for C-level executives and board members seeking the best possible basis for their decisions.

And in another report Capturing Business Value with Social Technologies, McKinsey conducted an in-depth analysis of four industry sectors that represent almost 20 percent of global sales.

[The analysis] suggests that social platforms can unlock $900 billion to $1.3 trillion in value in those sectors alone. Two-thirds of this value creation opportunity lies in improving communication and collaboration within and across enterprises. Frequently, these improvements will go well beyond the areas many companies have focused on to date in their social-media efforts: connecting with consumers, deriving customer insights for marketing and product development, and providing customer service.

 

Clearly, Pentland’s work supports McKinsey’s conclusion that: “Social technologies are destined to play a much larger role, not only in individual interactions, but also in how companies (and Pentland might add, societies), are organized and managed.”

 

Sandy Pentland is a member of this community. Comment on his work here.

Filter Blog

By author: By date:
By tag: