What Costco Can Teach the Public Sector

Organizations that invest in their workers reap the biggest gains.
November 2015
By Mark Funkhouser  |  Former Publisher
Former publisher of Governing and former mayor of Kansas City

If you’re looking for ways to turn a governmental entity into a high-performance organization, you’d do well to pay attention to people like Mike Salvino and Zeynep Ton. Salvino told the audience at a recent Governing event that when he took over as the group chief executive of Accenture Operations, he had an 87-page strategic plan for how to grow and manage that business. At the end of his first year, nothing had changed, so he scrapped the strategic plan and began to focus instead on the people in the organization. That emphasis is captured on a one-page card Salvino hands out that’s covered with phrases like “recharge your batteries” and “DO NOT miss events that mean something to you personally due to work.”

Salvino said his employee-centric approach produced frequent conflicts with what he referred to as the “HR and finance Gestapo” but that it also produced significant improvements in performance. Today Accenture Operations employs 93,000 people and has more than $6 billion in annual revenue.

Ton would not be surprised at those results. An adjunct associate professor at MIT’s Sloan School of Management, Ton is the author of The Good Jobs Strategy. Her field is operations management, and she has found that certain companies make four operational choices that are not typical of their industries but which allow them to deliver value to employees, customers and investors all at the same time.

The outstanding businesses offer less in terms of products, and that lets them reduce their costs significantly. They combine standardization of systems and procedures with empowerment of their employees, which allows the workers to be highly efficient and adaptive to customer needs. They cross-train their employees extensively, meaning they can respond well to variability in demand. And they operate with “slack,” deliberately erring on the side of overstaffing. That provides for better customer service and reduces costs by giving employees the time to engage in continuous improvement.

A company that operates this way “puts itself in its employees’ hands, and then does its best to make sure those hands are strong, skilled and caring,” Ton writes. “This is not a matter of happy talk, PR and employee-of-the-month awards” but “concrete policy” that produces gains across the business, from recruitment to in-store operations.

As an example of the value added by investing in employees, Ton compares the share price of Costco, a “good jobs company,” to that of Walmart, a company not known for investing heavily in its employees. Costco’s stock value increased by 300 percent from 2003 through 2013, while Walmart’s increased by only 40 percent.

Gains in the public sector are measured not by stock prices but by the public’s attitude toward government. It seems clear to me that strategies like the ones Salvino and Ton describe can also work well for public-sector organizations, increasing their value in the eyes of the people they serve.