Do you need “Self-Managing” labor costs?
That is, your labor costs go down when demand goes down.
That’s what happens in Gainsharing companies.
– Want Proof?
Whole Foods Market, Inc., in their 2nd Quarter 2009 Earnings Report, noted that their Gainsharing System had enabled them to achieve self-managing labor costs.
A.C. Gallo, Co-President and COO noted in this report,
“We actually are really pleased with the way that the in-store labor is going. One of the good things we have is because of our gain-sharing program, labor and wages is largely self-managing in our stores. The team has managed them based on a budget that they have and they have the incentives to come within that budget, or even below that budget, so they can get gain sharing.
That has worked really well, that program, through this whole process.”
If Whole Foods Market, Inc. can achieve “self-managing” labor costs, you can do it as well. This is one of the main benefits of Gainsharing.
– Self-Interest Drives Behavior
As the quote notes, with Gainsharing, employees have a “self-interest” in keeping labor and other cost factors at or below the targeted levels, so they become as he notes “self-managing”.
– What About Other Costs?
Gainsharing formulas usually include other factors too, so this dynamic applies to other factors such as material, transportation costs, quality performance, etc.
A properly designed Gainsharing System focuses on factors that drive company profits.
This provides three very important outcomes:
(1) Makes the system “self-funding”
(2) Focuses effort on the “important issues”, and
(3) Gets everyone “pulling in the same direction”.
Being that labor costs are such a significant expense, being able to effortlessly and consistently keep these costs in line provides significant competitive advantage.
– Secret Sauce
This is one of the “magic dust” advantages that most Gainsharing companies keep secret.
That’s why I was so surprised to see a company talking about this publically. You would expect me to claim this kind of benefit, but here is a major American corporation revealing this in the business press.
This is a powerful tool to help weather the effects of the downturn.
– Powerful on the Way Up Too
Companies that have this type of technique in place as business picks back up will be in good position to take advantage of improving conditions.
First, instead of hiring a proportionate increase in people as business picks up, they will (to the degree possible) handle the increase with the people they already have and use the business increase to drive bonuses and productivity.
Secondly, their Gainsharing System gives them the measures and feedback to make sure performance (from the customers’ point of view) is maintained or improved. As things get busy, they’ll use the focus, communication, and feedback systems to stay on track and make the most of the opportunity.
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