Monday
October 18
2010

Heather Esper

Book Review: The Profit at the Bottom of the Ladder

Jody Heymann’s book with Madga Barrera, The Profit at the Bottom of the Ladder: Creating Value by Investing in Your Workforce, examines the close relationship between improved employee working conditions and a company’s bottom-line success.

Heymann is founding director of the Institute for Health and Social Policy at McGill University and was founding director of the Project on Global Working Families at Harvard. The book leverages some of Heymann’s previous work during the past decade and draws on more than 500 interviews with a dozen companies between 2005 and 2009.

The twelve companies span nine countries and range in workforce size, from 27 to 126,000 employees, and have diverse customer bases: from retail to packaging, health care to document management. But the studied companies have two significant commonalities: 1) Each company has focused consistently on improving conditions for low-level employees and 2) each firm has been financially successful when taken from a larger, non-random pool of several hundred companies that also implemented employee-friendly policies.

Through these well-documented examples, Heymann repeatedly demonstrates that it’s worthwhile for companies to invest in and listen to their lowest level of workers to increase profits. Many of the lessons learned are portable to companies that source to BoP firms.

Several firms, (American Apparel, Jenkins Brick) noted increased productivity by implementing incentive policies or via attractive salary scales (Costco). Heymann discovered a direct connection between productivity and staff motivation brought on by incentives and by hiring the best of the best employees through offering attractive salaries.

Extended leave and flexibility regarding time off resulted in loyal workers and higher levels of job satisfaction for Autoliv Australia and Isola. These companies concluded that time off for sick leave and to care for family members was valuable enough to employees to make them loyal to the company long-term, and as a result, reduced turnover rates and associated costs, as well as absenteeism and inappropriate use of sick days.

In the cases of South Africa (SA) Metal, Associated Cement Companies Limited (ACC) in India, as well as American Apparel, on-site health care was offered to reduce health-related employee absences. In the former two companies’ cases, each firm provided an on-site clinic due a lack of infrastructure in the areas they operated. American Apparel went a step further and also offered health insurance plans for all employees, in addition to providing exercise breaks and an on-staff massage therapist to reduce repetitive strain injuries in the factories. Novo Nordisk in China also required employees take exercise breaks throughout the day, and provided ergonomically designed equipment in their factories to avoid repetitive strain injuries.

Heymann also discusses the advantages of offering training to upgrade workers’ skills (Isola), increase communication within the company through English classes (Dancing Deer and Novo Nordisk), and support to assist people with disabilities in obtaining jobs (Banco de Crédito del Peru and the Ann Sullivan Center). Beyond training, she also highlights Costco’s and Xerox Europe’s success in developing career tracks for entry-level employees, thus reducing hiring costs and turnover while developing loyal employees. Costco promoted from within 98 percent of the time, and after the first year of employment, turnover was less than 6 percent for line workers.

Heymann also showcases a number of different methods to engage workers and hear their ideas, with examples from Great Little Box, Isola, Novo Nordisk, and Dancing Deer that led to cost savings and efficiency increases. Novo Nordisk was able to increase efficiency by 50 percent by engaging line worker’s ideas regarding the production process.

In addition to investing in employees, Heymann discusses how both ACC and Costco’s investments in the community they worked in benefited them. As a result, both Cosco and ACC reported easier access to real estate in the communities where they invested, higher employee retention and productivity. Finally, she discusses steps companies can take to improve their working conditions and the working conditions of their suppliers.

At the end of the book, Heymann suggests that companies should consider viewing their “bottom of the ladder employees” through a new lens when she concludes: “The companies in our study showed that investing in their employees at all levels made economic sense, going against the common market wisdom that considers these investments an unnecessary expense.” She leaves readers with a blueprint for change in corporate strategy and five sets for profiting together, which left me questioning a business as usual strategy.

The book didn’t focus directly on the typical international base of the pyramid population, as many work in the informal economy and are not “typical” employees of the companies, Heymann notes. Still, I felt that many of the principles are relevant to companies who source from BoP producers, and if adopted, could likely increase those companies’ profits as a result of adopting new incentive structures, providing trainings if they don’t already, improved listening to BoP producers, and increasing BoP producer’s loyalty and trust.

Given my research focus on impact assessment, I couldn’t help thinking that an interesting follow-on study would be interviewing these “bottom of the ladder” workers to measure how the policy changes at work have impacted their quality of life, relationships with their families, etc. For instance, do they have less energy for their families after working harder at work thanks to a new payment system based on incentives? Or do they feel they have more control over their life now that they have flexibility regarding the time they take off from work?

I encourage NextBillion readers to check out this book and to rethink business as usual, as Heymann’s examples show that both employees and employers profit when companies invest in the “bottom of the ladder.”

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books, employment, profits