Productivity Loss: Fix It by Fixing Your Systems

Zeynep Ton, professor of the practice at MIT Sloan School of Management, recently appeared on SHRM's Tomorrowist podcast. A summary of that conversation appears below.

Increased distraction hurts workplace productivity, but is the solution simply to find better employees? MIT Sloan professor Zeynep Ton, author of The Case for Good Jobs (Harvard Business Review Press, 2023) and founder of the Good Jobs Institute, explains that the real problem may be the systems in which your employees work.

Poor scheduling, low pay, and lack of empowerment—all contributing to an increase in stress and decrease in focus and autonomy—are key drivers of low productivity. Subsequent problems, such as cold food in restaurants, long waits at call centers, and slow customer service, impact both customer experience and employee turnover, but are rarely connected back to leadership decisions.

“It’s a system problem, and sometimes leaders might miss that it’s a system problem,” says Ton. “It’s not just the person on the front line serving, but it’s the system that they work in that’s creating all sorts of bad experiences for customers and for their operations.” Leaders need to repair the systems in which employees operate, but instead they often turn to quick fixes, such as raising pay. Then, they’re surprised when those fixes don’t work. Why?

Because creating more good jobs requires an entire system to change.

Raising Pay Alone Doesn’t Get Productivity Results

Watching companies such as Costco, a client of Ton’s, succeed in setting a high bar for employee pay, many employers assume they can get similar results simply by doing the same. But the results fall short, and Ton knows why. “Pay alone doesn’t do much, but the absence of sufficient pay guarantees that people can’t focus on the job, and it guarantees that turnover will be high,” she says. “When I talk about a good job system, pay is just a component, but an essential component of that good job system.”

Rethinking the entire work system, including empowering employees, reducing tedious tasks, and providing better schedules, achieves real improvement—but is overwhelming for leaders. 

Ton knows executives feel stuck. They know their systems are flawed, but they’re unsure how to implement changes without risking profits. The Good Jobs system provides a framework for gradually making these systemic changes: Focus and simplify; standardize and empower; cross-train; and operate with slack.

Ton says system change seems risky, but the true risk is waiting. “System change is not as risky as it looks,” she explains. “You don’t have to change the whole system all at once. And status quo is more expensive than you may think.” One area she highlights is the cost of turnover—a sneaky expense that flies under the radar at most organizations.

Turnover Costs Are Higher Than You Think

One of the key benefits of the Good Jobs system is reducing employee turnover, which could equal 25% or even 40% of your payroll costs. Ton notes many companies never quantify the true costs of turnover, which include not only hiring and training, but also operational inefficiencies and lost sales. “Costs can range anywhere from 10% of payroll to 25% of a payroll in one organization. We’ve seen it as high as 40% of payroll,” she says. “So that’s a direct cost of employee turnover, but then there are the indirect costs of turnover, which are much bigger than the direct costs.”

The indirect problems are operational errors that lead to higher product costs in retail stores and restaurants, in addition to dramatic reductions in productivity. “In fact, low sales in so many settings we see is the highest cost that results from high employee turnover and an underinvested workforce,” Ton says. But once an organization focuses on good jobs, its culture becomes a potential turnaround story.

How Your Organization Can Get Started

Ton shares a story from a client where front-line employees wanted to solve customer problems on the spot, but initially were not allowed to. The employees were willing—the system wasn’t. The employer “had already invested in pay. They had already invested in other wellness programs, and they thought, you know, we could run an experiment to see what happens if we empower our front lines to solve customer problems.”

When leadership finally empowered the workers to do so, the dramatic rise in productivity was so significant that customer experiences were enhanced, and the company’s bottom line quickly improved.

This may seem like a lot to take in, so Ton leaves leaders with one core idea they can immediately start working on. “Focus on the customer. Go to the front lines and ask your employees, ‘What are your customers’ and your biggest frustrations?’ ” says Ton. Also ask, “What are your biggest frustrations, and what can we take out from your plate that will help you serve the customer better, and how can we improve your lives too?” By doing this, Ton says, you can begin the journey of creating good jobs at your organization.