Saturday, July 24, 2010

Bottom of the pyramid employees

In businesses that are bottom heavy (ignore the pun) like retail, transportation and warehousing, there is usually a significant difference of salary between the top and the bottom. The CEO of a retailing firm could have a salary package that is 200 to 400 times more than the package of a worker who manages the cash register. Such businesses are also characterised by high attrition of low salary scale employees and also have lower training expenses.

That lower rung employees will have an attrition of around 15% per month is assumed to be a unchangeable fact. Firms design all their processes around this fact. These businesses try to "McDonaldise" their shop floor processes and reduce the dependence of employee knowledge on business. Employees are specialised in a particular task and department. So, a cash counter person will do just that. A person in the toys section will do just that. They set up a tall hierarchy based structure to ensure process compliance. They have a strong recruitment division and also they foster partnerships with recruitment consultants. The salary of the lower rung workers is kept at a minimum and they are trained only if they stay with the company for more than a year. It seems logical. If they are going to leave, it does not seem sensible to waste resources on these employees.

A retail firm in Spain has turned this logic on its head. They pay their shop floor level employees higher, and invest significantly more in their training. Mercadona, a Spanish retailer, has sales per employee that is 18 times the average for Spain and 50 times higher than the USA. They have an attrition rate of only 3.5% per year. Look at the article here - http://bit.ly/mercadona

Its the vexing issue of questioning the assumptions. Bottom of the pyramid employees are directly in contact with the customers. Customers need intelligent employees. A McDonald's with 15 items only on the menu can standardise every little thing. A super market with 1500 items cannot do this. Many times sale happens because of good selling by the employees. And employees become good at selling only if they are on the job for some time and they feel good about the job that they are doing.

Another way to look at it is the cost issue. A store clerk would have a salary or around Rs. 45,000 per year only. A retail CEO can have a salary of around Rs. 20 million. Assuming a store has 400 ground level staff, their total package would still less the package of the single CEO. A 20 % increment amounts to Rs. 750 per employee per month. In an apparels store if one employee sells one extra shirt, this cost is easily recovered. It may not be as simple as this. A salary hike for the shop floor workers would have a domino affect increase for the supervisors and above also. Yet, the impact would not be a difference of life and death for the organisation.

If it has been done in Spain, I am sure it can be done in India also. But, someone needs to challenge the basic assumption. Some firm needs to start at recognising that the bottom of the pyramid employees are important. They need to move from lip service to actually facilitating these employees. Sam Walton had said, "I take care of my employees, they in turn take care of my customers". Someone needs to actually put this into practice.

5 comments:

Ashwin P Anand said...

Great read sir...But when even software professionals with a 3yr+ experience get around 30k here, companies would be skeptical about paying heavily to store salesmen with comparatively lower skill sets,forgetting the fact that they are the ones with potential to bring more business.I believe investemnts in salesmen and IT are 2 such things that can turnaround Indian Retail Industry.

contactnirbhay said...

Really a nice thought, but, would still feel that pay hikes in lower levels of Cadres in Retail is a far distant sight. Reason being the Demand and Supply gap in these resources. India has enough number of unskilled unemployed work force. I think this case will be more apt when we compare BPO with retail Industry as in BPO is also having same kind of issues....

Hari said...

A good read ! I think this is were Vineet Nayyar's ( HCL fame) idea of employees first and customers second comes true.

yajurveda said...

Maybe some budding Kishor Biani would dare to implement the idea which is perfectly logical and possible. Great read.

KrRahul said...

Very thought provoking…