When Doing Less Adds Up to More

Imagine that, as a new executive at a retail company with stagnating sales, you’re tasked with finding new ways to grow revenues. After studying the market, you propose a new line of products to be sold in all of your locations. Upon launching the new product line, however, sales aren’t as robust as expected, so you introduce price promotions and give the new lineup more prominent store placement. Yet sales still don’t budge.

When you visit stores to investigate, you find that some locations haven’t rearranged the store layout and others haven’t stocked the inventory they received weeks ago. A sales associate at one location is confused about which of your several products are new, while the manager at your most popular location tells you that overall sales have declined since the store was rearranged around the new lineup because regular customers can’t find the products they’re used to purchasing.

Back at headquarters, you study your company’s employee and customer metrics and find a high rate of employee turnover and harsh customer reviews about the level of service they receive, all dating back years. In this environment, what if, before adding new products and promotions, you first considered subtraction?

Although this is a hypothetical example, it’s been a surprisingly common state of affairs at several companies my colleagues and I have worked with through the Good Jobs Institute, a nonprofit I cofounded in 2017 to help leaders set their employees up to succeed.

The work that customer-facing employees do is significantly determined by people working in upstream functions such as sales and marketing, IT, logistics, and product design who do not manage that work. Unfortunately, at most companies we’ve worked with, the people in upstream functions rarely considered the impact their decisions would have on the front line.

Functions working in silos make rational decisions to improve their own metrics but all too often simply build on earlier decisions, without coordination. They initiate new pilots, reports, technologies, performance tools, processes, directives, delivery schedules, and display layouts, not to mention last-minute changes to deliveries, deadlines, meetings, and promotions — all of which require a lot of scrambling at the front lines.

As a result, decisions from upstream functions often reduce value to the customer because they make it difficult for customer-facing employees to provide good service. Productivity is low because of complicated workflows, errors, rework, confused customers who require more attention, and employees bogged down with tedious tasks. Low productivity makes it harder to pay employees more, and low pay drives higher rates of turnover, creating a vicious cycle of high turnover and poor performance. Big swings in workload make it hard to provide stable schedules or operate with full-time employees. When employees are asked to redo something because someone at headquarters changed their mind, or when they fail in front of a customer because of a rule that doesn’t make sense, they are demoralized. Understaffing is common because the amount and variability of the workload is often much higher than what upper management assumes and causes burnout, corner-cutting, and poor service. Finally, all of this overload creates anxiety, which takes its own toll.

Research has shown that people systematically overlook making subtractive changes as an option. In our work with companies, we have also seen a tendency to default to addition (of features, products, or promotions) to grow a business but seldom a consideration of subtraction as a major change lever. Yes, leaders often take steps such as closing units, selling off divisions, or laying off employees with the aim of streamlining the business, but such steps are blunt instruments aimed at improving the company’s immediate financial health, and they tend to detract from employee effectiveness and customer experience.

Subtracting upstream, in contrast, is a more deliberate process that involves coordinating various functions of a business in order to reduce complexity for front-line employees and investing in those employees so they can better serve customers.

How Subtracting Upstream Works in Practice

To start subtracting, upstream functions should spend time on the front lines talking to employees and their managers to identify the most significant factors affecting their workloads. Which of these activities drive value for customers, and which ones are a distraction? The same goes for the product or service offering: What can you take out that will strengthen your value proposition by making it easier for customers to find what they want or ensuring that what they get is what they need? What makes employees’ work needlessly tedious, unproductive, and unpredictable? How can you schedule non-customer-facing tasks or influence customer demand to better smooth the workload?

When Mercadona, a Spanish supermarket chain, looked for ways to become more competitive in early 1990s, one of its first moves was to stop offering frequent promotions and stick with consistently low prices. Promotions create peaks and valleys in customer demand, causing extra work for employees and increasing costs throughout the supply chain. Mercadona wanted to win with its customers by offering the best quality-to-price ratio, the best service, and a quick in-and-out experience. Giving up on promotions strengthened that value proposition on all three counts. Mercadona is now Spain’s largest supermarket chain.

Similarly, in 2017, Sam’s Club began a turnaround to improve its customer experience, which required it to fix employee turnover and position employees to better serve customers. One of the biggest levers was to reduce the number of products and price changes — both of which involved the merchandising function. Sam’s had kept adding products over the years, which made it take longer to shelve products and harder to keep all of them in stock.

Store managers were also buried with requests from different functions at the home office. To reduce the number of requests, smooth out their timing, and coordinate them so that they hit during less-busy times of the day or week, Sam’s Club created a gatekeeper (which it called ATC, for air traffic control). If HR, logistics, or merchandising wanted to initiate a pilot or a new tool, the department had to discuss it and get permission during a Monday all-department meeting. This freed up time that store managers had been wasting dealing with confusing, often mixed messages from corporate and helped them level out the front-line workload.

All of this subtraction — and more — improved employees’ ability to provide good service and Sam’s Club’s ability to lower prices. John Furner, the former CEO, told my students that the company started getting letters from customers thanking it for hiring additional associates, even when it hadn’t done so, because associates were more available to help them. Clubs that reduced product variety began receiving higher customer ratings for breadth of assortment as items became easier to find (for both customers and employees). In addition to reducing clutter, having fewer products meant higher stock levels (due to both better demand forecasting and better operational execution) and lower prices for customers.

Quest Diagnostics offers another example of the power of subtraction. When the lab services company realized that its overwhelmed call centers were actually costing it business, one of the first changes it made was to reduce the call volume. It found, for example, that physicians would rather receive normal test results by fax than by phone. By subtracting the task of reporting normal results by phone, Quest reduced outbound calls by 16%. It then installed a fax capability on the phone reps’ computers, thus subtracting the need for them to get up from their desks to go use a separate fax machine. The result of these and other subtractions was a decline in the number of calls and better customer service.

Enabling Upstream Subtraction

Many executives are aware of the troubles caused by their own self-inflicted complexity and blame it on pressure to meet short-term goals. “Financial pressures lead us to be all things to all people,” one executive said during a Good Jobs Institute workshop. “And that’s not a strategy.” Even so, many are afraid to simplify for fear of losing sales.

Other executives feel trapped by their own incentives — pay and promotion — and their siloed structures that won’t let them make what they can see would be the best decisions for customers, for employees, and for company performance. A logistics executive might recognize that improving the predictability of deliveries could improve store productivity and sales, but if their incentives are tied to minimizing costs, and if they are siloed from decision makers who manage other aspects of the business, a delivery schedule that inconveniences stores may be their only viable option.

At some companies, we’ve seen upstream subtractions remain undone simply because they haven’t been prioritized. At one financial services call center, almost a third of the call volume concerned confusing bill-payment procedures. Everyone knew that fixing that procedure would improve customer experience and rep productivity, but it was never prioritized because front-line work wasn’t seen as essential to increasing sales and profits.

In our experience, the companies that have made winning with customers their primary objective have been able to subtract effectively and have recognized the benefits to their bottom lines. With an end-to-end focus on the customer, they could free themselves from siloed and primarily financially motivated decision-making and move to systems- and customer-centered decision-making.

Take, for example, Mud Bay, a chain of pet stores based in Olympia, Washington. Mud Bay was open until 9 p.m. Monday through Saturday and until 7 p.m. on Sundays. Employees reported that the stores were “dead” near closing time and recommended simplifying by closing earlier. But when a Mud Bay team analyzed sales data over a six-week period, they saw that the last-hour sales were significant enough that if stores lost them, the payroll savings would barely make up for it.

Companies that made winning with customers their primary objective have been able to subtract effectively, and have recognized the benefits to their bottom line.

In many companies, that would have ended the discussion. But Mud Bay’s leadership considered how the knock-on effects of closing earlier could benefit the system: Improving employees’ schedules could reduce turnover, and longer-tenured employees were more likely to acquire the product expertise needed to engage in consultative selling, which would improve customer experience and loyalty, thereby increasing sales.

So Mud Bay decided to reduce its hours. Instead of declining, same-store sales grew a healthy 13% compared with the previous year. Since 2017, Mud Bay has reduced hours even more — by 16%, all told — with no drop in sales.

The Effects of Upstream Subtraction

Upstream subtraction can make a huge difference in companies’ ability to reduce turnover — the root cause of many performance issues — and improve customer loyalty. When I studied Mercadona, turnover was less than a tenth of the grocery industry average. Sam’s Club reduced hourly workers’ turnover by 25%. Mud Bay reduced turnover by 35%. Quest Diagnostics reduced turnover by more than 50%. These studies are described in detail in my book The Case for Good Jobs.

Upstream subtraction helps reduce turnover for several reasons. Employees feel more pride in their work because they can do a much better job; when Mercadona’s employees didn’t waste their time on tedious price changes, they had more time to help customers. It also allows the company to invest more in its people. From 2014-17, Mud Bay, a company with a profit margin of only 2%, was nevertheless able to raise pay levels by 24% for front-line employees. In 2019, Sam’s Club increased wages for thousands of employees, including meatcutters, bakery specialists, and team leads, by $5 to $7 an hour, from a base of $15 an hour.