Despite its woes, GE must stay entrepreneurial – Bill Aulet

MIT Sloan Sr. Lecturer Bill Aulet

MIT Sloan Sr. Lecturer Bill Aulet

From The Boston Globe

When I heard the news that GE is considering breaking itself up into smaller units, I was overcome with sadness. I started my career at IBM in the early 1980s and saw that company brought low, and now a similar scenario is playing out with another venerable firm.

But wait a second, as a professor of entrepreneurship, don’t I want to see a big conglomerate broken up into smaller, more nimble companies that can be more entrepreneurial?

Not in this case. That kind of thinking illustrates a fundamental mistake people make when they contemplate entrepreneurship and existing corporations.

As an entrepreneurship educator, I teach students the mind-set and skills to help them succeed in bringing new, innovative products to market and new ventures into being. But there is a common misunderstanding that entrepreneurship equals startups and that we are preparing our students to join the Silicon Valley depicted on TV dramas. Not so.

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If retailers want to compete with Amazon, they should use their tax savings to raise wages – Zeynep Ton

MIT Sloan Adjunct Associate Professor Zeynep Ton

MIT Sloan Adjunct Associate Professor Zeynep Ton

From Harvard Business Review 

Walmart announced today that it is raising its starting wages in the United States from $9 per hour to $11, giving employees one-time cash bonuses of as much as $1,000, and expanding maternity and parental leave benefits as a result of the recently enacted tax reform. It is part of Walmart’s broader effort to create a better experience for its employees and customers. The new tax law creates a major business opportunity for other retailers as well — if their leaders are wise enough to take advantage of it.

The U.S. corporate tax rate is dropping from 35% to 21%. Retailers, many of whom have been paying the full tax rate, are going to benefit substantially. Take a retailer that makes 15% pretax income. Assuming its effective tax rate goes from 35% to 21%, it could save the equivalent of 2.3% of sales. Specialty retailers with higher pretax income will save even more.

Retail executives have a choice in how they use these savings. I believe the smartest choice — one that will help them compete against online retailers like Amazon — is to create a better experience for customers and to achieve operational excellence in stores. For most retailers, doing both requires more investment in store employees — starting with higher wages and more-predictable work schedules. My research shows that combining higher pay for retail employees with a set of smart operational choices that leverage that investment results in more-satisfied customers, employees, and investors. Read More »

Retailers are leaving money on the table by understaffing – Rogelio Oliva

MIT Sloan Visiting Professor Rogelio Oliva

From Marketwatch

If you’ve gone shopping this holiday season, you may have had the following experience.

You go into a store looking for a gift but need help from a salesperson. Maybe you need more information on the product, or perhaps you need help finding the right color or size. You look around the store, but you can’t find anyone. Giving up, you leave the store without making a purchase.

If that sounds familiar, you aren’t alone. The proportion of customers who typically leave a store because of poor service is not negligible. Prior research shows that 33% of customers who experienced a problem were not able to locate sales help when they needed assistance, and 6% of all possible sales are lost because of lack of service.

Help wanted

Effective management of store labor is clearly important, as it impacts sales performance. However, labor-related expenses also constitute one of the largest components of retailers’ operating costs. As a result, there is a widespread tendency to understaff to save on those costs.

But what is the right number of employees? This is a complex question, as retail environments are characterized by volatile store traffic, making it hard to determine the correct staffing levels and often leading to inconsistent service.

The traditional method for determining staffing is sales-driven and depends on store budget allocation. A typical sales-based staffing rule is to match a constant ratio of expected store sales to the number of store associates. However, that rule ignores the fact that retail sales are also affected by store traffic and might result in labor-to-traffic mismatches, which can hurt sales revenue. Retailers can’t reach their full potential in sales if they follow that staffing practice.

Another problem is that shopper demand may be different from past sales, as past sales include only customers who purchased and not those who had an intention to purchase but left the store due to lack of service. As noted above, this is a fairly common scenario.

Matching staff to shoppers

To address this challenge, my colleagues and I developed a method to match store labor with incoming customer traffic in an efficient manner to improve sales performance. Our method is unique, as it goes beyond the focus on past sales at individual stores to leverage performance data across different stores within a retail chain. It enables retailers to derive aggregate labor requirements by using traffic data, point-of-sale data and labor data across stores with similar attributes like store format, product mix and market demographics. Read More »

How traditional retailers could lure you back this holiday season – Sharmila Chatterjee

MIT Sloan Senior Lecturer Sharmila Chatterjee

MIT Sloan Senior Lecturer Sharmila Chatterjee

From Fortune

It’s beginning to look a lot like Christmas everywhere you go. Take a look in the five-and-ten—and while you’re at it, look at all the other store windows advertising spectacular sales, holiday discounts, and clearance extravaganzas. The markdowns are as widespread as they are substantial. This year on Black Friday, for instance, the average advertised discount across 17 major retail categories was 45%, according to the price-tracking firm Market Track.

As ecommerce continues to eat away at traditional retail, brick-and-mortar stores seem to believe that the best way to compete is to slash their prices. This tactic might be understandable if, say, the country were in a deep recession. But GDP has been growing for eight consecutive yearsthe unemployment rate is at a 17-year low, wage growth is strengthening, and the stock market is in the middle of a nine-year bull run.

In this economy, it is not necessary for retailers to pander to bargain hunters—nor is it wise. Sure, some holiday shoppers may be lured to the shops in search of a great deal, but if that’s what they’re looking for, they can easily go online. Brick-and-mortar stores cannot match the price-comparing capabilities the Internet offers.

Instead of competing on price, stores should invest to entice customers. By focusing on their core competencies—one-on-one, human-to-human customer service, sensory-stimulating in-store experiences, and promise of instant gratification—traditional stores have an opportunity to excel where websites falter.

There’s good news and bad news for retailers this year. On a positive note, consumer confidence is strong and customers are feeling flush. According to data from the National Retail Federation, sales for November and December are expected to clock in at about $682 billion, which would make 2017 the strongest holiday season since 2014. But on the flip side, department stores as a shopping destination placed a distant third behind the Internet and mass merchants, according to Deloitte’s annual holiday retail survey.

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Four ways technology will change how people do business – Thomas Kochan

MIT Sloan Professor Thomas Kochan

MIT Sloan Professor Thomas Kochan

From MIT Sloan Custom Studio

Technology platforms and the IoT are clearly changing the structure of organizations — and the valuation of companies today is out of line with the numbers of jobs they create. In the past, the General Motors, and even the Googles, created lots of new jobs and the valuation of the company reflected this — but compare Netflix, just 3,700 employees, with its old-world equivalent, Blockbuster, which at its peak had $7 billion in revenue and 60,000 employees. Today, Netflix has a larger market capitalization. The world is changing — and the question is, will we create enough good quality jobs to meet the needs of the workforce of the future?

There’s an old Japanese phrase that came out of robotics work in the 1980s and 1990s in manufacturing that technologists ought to begin to understand and build into their work: “It’s workers who give wisdom to machines.” People give wisdom to the technology and then technology can in turn enhance human judgment. We can solve big problems in the world and create big opportunities and the next generation of inventions and jobs.

But it will mean some major changes to how businesses are run — and how companies view (and use) technology.

Technology is a tool — not a goal.

It’s not technologies that will solve future challenges — it’s how we use them that counts. That means we have to start with human and societal problems, and figure out how to put technology to work to address and complement what we can do together with other institutions. We must define the questions we ask of technologists and not view technology as an autonomous, deterministic force, but as an asset that is mobilized to address these important issues. Most important, we have to educate technologists and not leave them to define the objectives of the technology. If we do, they will define it very narrowly and squeeze out as much human variabilities as possible, which would lead us to false solutions. A broad participation in defining the problems will enable us to find our way to a better world for everyone.

Technology platforms need to be designed with stakeholders in mind.

There’s no single deterministic model or market design for digital platform design. Uber uses data to control its customers and driver workforce. What would be different about the experience for drivers, and maybe customers, if that information was decentralized so they could maximize their own incomes and improve their own livelihoods? We have to think about how we design these new platforms, so the benefits are more broadly shared across the different stakeholders.

In the long run, a good business model is one where the more your customers and employees know how the company works and have information to control their actions, the more committed they will be to building the business to benefit both themselves and the organization that’s providing that information. We’ve got to think about ways customers, employees, even public/private partnerships can share information to use these technologies much more holistically than for some specific stakeholder. In this way, customers become part of the innovation cycle. Maybe not the first mover for innovation but the second generation, and that will create new jobs, opportunities and applications.

It’s not about technology per se, it’s the interactions with people that use them and organizational designs that drives high levels of productivity, customer service and innovation. The new, flexible enterprise also has to draw on people outside the organization more fully. We must ask what’s in it for various stakeholders, and have them contribute to further development and inventions. If they are invested in it and see joint gains, it continues a positive cycle of innovation.

As organizational structures become more flexible, corporations will need to adapt.

A flexible corporate structure will need a lot more coordination across groups and different bodies of expertise. That means the “solid,” functional firms — finance, operations, HR, marketing and so on — are really going to be challenged to work out how the discovery and deployment of new apps will involve people across functions.

That doesn’t mean the old-world corporation is defunct. We still need people who have specialized knowledge in IT and marketing, but the productivity comes in linking them. Knowledge bases won’t go away, but the people and skills most valuable in the future (and incomes already reflect this) are the ones that have hybrid skills with technology know-how and figure out how to apply to functional areas. HR people won’t only specialize in compensation and performance management, but also know how to utilize technology to better design how we do our work.

With a lot of knowledge at the edges of organizations, strategy has to keep an eye on what the business is trying to achieve and ask how to be successful on a financial and sustainable basis, as well as when it needs to ally with others outside its traditional boundaries. This remains the role of the CEO and the board. However, they also have to rely on information flowing up rather than dictating what will be. That day is over.

The relationship between companies and workers is changing, too.

Technology is leading to a more decentralized workplace, with the flexibility to work in different places at different times. But do we have the managerial wisdom to take advantage of the new norm? There’s still the legacy of Frederick Winslow Taylor’s management control thinking: “If you’re not in the office, I don’t trust you’re not at home playing computer games.” The distributed workplace calls for a mindset change in management to ensure that we work with people and don’t compensate them for the amount of time spent in the office, but for the contribution they make and the work they do. If we can get over this managerial hurdle, we can take advantage of distributed workplaces.

We have to get over the notion that it’s all about shareholder value and the shorter term, and instead invest for the long term and listen to employees. This means finding ways to expand and create value, but also discovering ways to distribute value more equitably. At MIT, we have a good companies and good jobs initiative, and are going to hold a series of multi-stakeholder forums around these broad questions: What makes a company a great place from the standpoint of financial return, but also good for jobs and career opportunities?

The reality is, if we don’t start to engage in this way and have a social contract where people feel their interests are being served, we are going to have an explosion. It happened with Brexit, it happened in the 2016 U.S. election. A new social contract must be based on trust, mutual interest and listening to each other, creating value together and negotiating how to distribute value more equitably. Use the knowledge of the workforce by all means, but we can’t have a world of winners and losers.

This article is excerpted and modified from Telefonica and MIT Sloan Leaders Consider Distributed Future

Thomas Kochan is the Co-director, MIT Sloan Institute for Work and Employment Research, where he is Professor of Work and Employment Research.