Why companies that pay above the minimum wage come out ahead — Zeynep Ton

MIT Sloan Adjunct Associate Professor Zeynep Ton

MIT Sloan Adjunct Associate Professor Zeynep Ton

From Forbes 

Nearly one fifth of American workers work in retail and fast food, and they have bad jobs. They earn poverty-level wages, have unpredictable schedules that make it hard to hold on to a second job, and have few opportunities for success and growth. These are not just people who are uneducated or unskilled. In 2010 more than a third of all working adults with jobs that did not pay a living wage had at least some college education or a degree.

The conventional wisdom in business is that bad jobs like this are necessary to keep prices low and profits high. If a low-cost retail chain were to pay its cashiers more, then it would either make less money or have to raise its prices. Implicit in this logic is the seemingly self-evident tradeoff between low prices and good jobs. But that is a false tradeoff. Even in highly competitive industries like low-cost retail, it is possible to pay employees decent wages and treat them well while giving customers the low prices they demand.

I studied four retail chains that manage to do this: Costco, Trader Joe’s, QuikTrip (a U.S. chain of convenience stores with gas stations), and Mercadona (Spain’s largest supermarket chain). They offer their employees much better jobs than their competitors, all the while keeping their prices low and performing well in all the ways that matter to any business. They have high productivity, great customer service, healthy growth, and excellent returns to their investors. They compete head-on with companies that spend far less on their employees, and they win.

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General Motors should expect more failed parts — Steven Spear

MIT Sloan Senior Lecturer Steven Spear

MIT Sloan Senior Lecturer Steven Spear

From USA Today

General Motors CEO Mary Barra appeared before a Senate panel once again Thursday to discuss the company’s flawed ignition switches and vowed that GM will “do all it can to make certain that this does not happen again.”

In terms of damage control, much of what Barra and GM appear to be doing right now is positive: fessing up about product failures, bringing in outside investigators and firing employees that failed to take appropriate measures.

And while these are important steps, they amount only to a good, if somewhat belated, crisis management strategy. In fact, these efforts pale against the very real organizational challenges that lay ahead for GM and Barra. In order make good on her promise to Congress, Barra must prevent the kinds of engineering failures that caused the ignition problems in the first place and the organizational failures that propelled the problem to its current tragic magnitude. And that will mean changing the culture at GM.

Engineers like to be right. They like to prove that they have the correct answer.

Highly trained and highly motivated to solve problems, at the point of releasing a design or demonstrating a model or a prototype, everything in them is wired to prove that they’ve arrived at the right answer. The premium is so high on being “right” that even when data starts proving them wrong, they work to show that they are right somehow. They seek to explain what is happening is an exceptional outlier or an aberration; not that it is a sign of a problem. Read More »

Another reason not to fear inflation — Roberto Rigobon

MIT Sloan Professor Roberto Rigobon

From Bloomberg View

U.S. inflation has been accelerating in recent months, presenting the Federal Reserve with a tricky question as it decides how quickly to remove stimulus from the U.S. economy: Is the rise in prices a precursor of things to come or simply a “catching up” phase as people begin to spend again after a brutal winter?

Recent data from the U.S. Labor Department have led some to suggest that the long run of very low U.S. inflation could be ending. From Dec. 31 through May 31, the consumer price index — not seasonally adjusted — rose a cumulative 2.1 percent. That’s equivalent to an annualized inflation rate of more than 5 percent, far exceeding the Fed’s target of about 2 percent.

If this is more than a temporary phenomenon, the Fed might have to respond by raising interest rates sooner than expected — a move that would restrain economic growth and could trigger sharp declines in stock and bond markets.

Some officials at the Fed, though, reportedly do not believe that the surge in consumer prices represents the beginning of a new inflationary trend. After all, in the period just before the winter, from Sept. 30 to Dec. 31, prices actually fell by a cumulative 0.5 percent. Combine the two periods, one with an increase and one with a small drop, and you get an annualized inflation rate since September of about 2.4 percent.

Read the full post at Bloomberg View

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Management Goes Mobile — Carl Stjernfeldt

MIT Sloan Sr. Lecturer Carl Stjernfeldt

It’s an old business rubric:  What gets measured, gets managed.

In the age of big data, the very basic set of measurements that managers used to rely on is expanding to a robust set of 24/7 sensor inputs from factory floors to off-shore petroleum platforms – all of it accessible across a wide variety of mobile devices to employees at many levels.

Management is now able to access data from varied locations, crunch it at headquarters and then return the enhanced data to managers out in the field, on the factory floor or on the oil fields. These new, more robust data sets will allow managers to make better decisions in a shorter amount of time than ever before. For companies in complex industries, such as Shell where I work, the potential for increased performance, efficiency and safety is enormous. Read More »

Not all entrepreneurs are young — Jim Dougherty

MIT Sloan Sr. Lecturer Jim Dougherty

From Xconomy

Most of the famous entrepreneurs we hear about are fairly young. We tend to read in the popular press about the Mark Zuckerbergs of the world and assume that all successful entrepreneurs launch businesses in their 20s. However, this couldn’t be further from reality.

Recent studies show that older entrepreneurs are increasing while the number of younger entrepreneurs is decreasing. According to the Kauffman Index of Entrepreneurial Activity, the share of entrepreneurs in the 55-64 age group jumped from 14.3 percent in 1996 to 23.4 percent in 2012. In contrast, the share of entrepreneurs in the youngest age group of 20-34-year-olds decreased from 34.8 percent in 1996 to 26.2 percent in 2012.

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