WHEN BUSINESSES COMMIT TO INDIVIDUALITY - THE AGE OF INDIVIDUALS - Abraham Lincoln - James M. McPherson

The End of Average: How We Succeed in a World That Values Sameness - Todd Rose (2016)

Part III. THE AGE OF INDIVIDUALS

All organizations are based upon fundamental assumptions about individuals, whether they know it or not.

—PAUL GREEN, MORNING STAR COMPANY

Chapter 7. WHEN BUSINESSES COMMIT TO INDIVIDUALITY

One of my first jobs after I dropped out of high school was working in the layaway department of a big-box store. If I had to use a single word to describe the attitude of my coworkers, it would be apathy. Even my boss, a likable and easygoing woman in her late forties, was as disengaged as the rest of us. When I started I was eager to make an impression, so I came up with what I believed to be a better way to organize the layaway tags so that customer’s items would be easier to find. I eagerly shared my idea with my boss and asked if we could try it out.

“Why bother?” she replied with a half-hearted shrug. “Even if it is better, corporate will never allow it.” A few more weeks on the job and I understood what she meant. My idea for changing layaway tags might have been a good one, but it would have been a waste of time to pursue it because I was merely a tiny, interchangeable cog in a gigantic, well-oiled machine. There was no incentive for deviating from the prescribed course, even if it might benefit the company. I was expected to do a certain set of tasks, defined by somebody else—nothing more, nothing less.

Each of us was viewed as replaceable, and we were replaced, often—during my six-month stint at the big-box store, about a third of my coworkers left, including my boss. The rampant turnover made it difficult to develop trusting relationships with my fellow employees because I knew that everyone was temporary. The company, however, was built for this constant churn. Management had carefully designed the system to be “employee-proof” so that no individual worker could disrupt the operation of the store. This was the trade-off the company had decided to accept: they got cheap, interchangeable labor that kept their streamlined system humming; the employees, like me, lost of any sense of purpose or engagement.

Employee indifference is not unique to any one company or business sector—it is endemic to most organizations that rely on Taylorist principles of standardization and hierarchical management. Taylorist “planners” or managers make all the important decisions about how to standardize the operations, and the workers implement those decisions, right or wrong. This is one reason why a 2013 Gallup study found that 70 percent of employees reported feeling disengaged from their jobs.1

A century of averagarian business models stemming from Taylorism has convinced us that for the system to win, the individual must be viewed as a cell on a spreadsheet—like a disposable Average Employee. This conviction is spectacularly wrong. Throughout the book, I’ve shared the stories of companies like Deloitte, Google, the Adler Group, and IGN—who have adopted, even if implicitly, the principles of individuality with great results. By abandoning the mental barriers of one-dimensional thinking, essentialist thinking, and normative thinking, these companies have been able to create highly engaged and competitive workforces. It’s easy to assume that these companies are in a position to do away with the legacy of Taylor’s scientific management because they have vast resources, or because they operate in industries that are uncommonly open to unorthodox ways of doing business (like the tech industry). But applying the principles of individuality is an option available to every business, in every industry, and in every country.

Three companies—a retailer, an IT company in India, and an industrial food manufacturer—demonstrate that even in industries or countries where it seems like following an averagarian model is the only profitable way to do things—or, at the very least, the best way—applying the principles of individuality can produce just as good if not better results.

THE SECRET TO LOYALTY AT COSTCO

According to its employees, Costco is a great employer. For four years in a row, it has earned a place on Glassdoor’s list of Top Places to Work, hitting the number two spot in its 2014 list of Top Companies for Compensation and Benefits—only Google was rated higher.2 There are good reasons that employees praise the big-box retailer. In 2014, the typical Costco employee earned just over $20 per hour, compared to a retail industry average of $12.20 per hour, and 88 percent of them participate in company-sponsored health care. During the great recession of 2008, as other retailers were laying people off, Costco actually gave its employees a $1.50 per hour raise.3

These employee-friendly stats did not happen by accident. They are a direct consequence of the company’s philosophy toward the individual. “Investing in individuals is the core of what we do,” Costco founder Jim Sinegal explained to me. “It’s not just a slogan. People often say they care about individuals, but it’s something they print up for PR, not something they believe in. But our assumption all along has been that if you hire great people, give them good wages, treat them with dignity, and give them an honest path for a career, great things will happen.”4

One of the ways Costco invests in its employees is by giving them power over their career pathway. Management helps employees develop whatever skills they think may be useful for the company and encourages them to explore job openings at Costco, even for positions in departments much different from their present one. Costco backs up this commitment to employee self-determination by promoting heavily from within the organization. More than 70 percent of Costco’s managers started out pushing carts or working behind a register.5

One example of an employee who forged her unique pathway at Costco is Annette Alvarez-Peters. She attended a few semesters of community college before starting her Costco journey at age twenty-one as a sales audit clerk in the accounting division of a San Diego store.6 Then she moved into merchandising, where she held several positions, including receptionist, administrative assistant, reorder clerk, and then assistant buyer, where she was responsible for Blank Media (floppy diskettes and blank tapes), and Telecommunications (telephones and cellular). Since she exhibited a knack for buying, she was promoted to Electronics Buyer, and then Beverage Alcohol Buyer for the Los Angeles division. Finally, in 2005, she ascended to her present position, where she is in charge of buying all wine, beer, and liquor for Costco, a position so influential that she was ranked number four on the Decanter Power List of the most influential people in the international wine industry.7 Her career pathway at Costco took her from an accounting clerk to a position where her decisions can affect the price of wine at your local restaurant and what grapes are planted in Italy.8

Annette’s professional path would be unimaginable at many companies, where normative thinking compels managers and human resources departments to lock employees into a narrow career path, or where certain positions are cordoned off for employees who fulfill certain requirements, such as getting an MBA or working a specific number of years in the industry. “Annette doesn’t seem on paper like the type of person who should be important for the wine industry, but she is,” Sinegal tells me. “People outside Costco often seem puzzled by her career path, but nobody inside Costco was.”9

Matthew Horst’s path at Costco was no less unique than Annette’s. Matthew’s brother, Chris, wrote an open letter to Sinegal and the president of Costco, Craig Jelinek, in which he explained how Matthew had always been limited in his job opportunities because he had been diagnosed as a person with special needs—limited, that is, until he applied to Costco. Matthew got a job pushing carts in the Lancaster, Pennsylvania, Costco. Since then, Matthew has been promoted several times, carving out a career that he loves in the process. “For his entire life, Matthew has been classified and known by his ‘special needs,’” wrote his brother. “Since the day he began at Costco, however, his coworkers and customers have valued him because of his unique strengths.”10 Costco didn’t evaluate Matthew by comparing his traits to those of an average employee; they evaluated him by what he brought to his job as an individual.

“Fit is everything,” Sinegal explained to me. “We look beyond simplistic ideas like a [college] transcript or things like that for hiring… . There are attributes that matter at Costco, like being industrious. But how do you see that on a résumé?” Sinegal recognized early on that the best way to identify talented young people was to recruit students from local colleges to work part-time rather than hiring graduates from famous universities. Costco cultivates long-term talent by identifying those part-time workers who demonstrate that they are a good fit with the Costco environment—and at the same time allowing those students to see what Costco has to offer them.11

Of course, Costco’s commitment to individuality would not matter if the company could not successfully compete in the retail space, an industry with razor-thin margins and formidable labor costs.12 But Costco has not only been profitable every year since it went public, it has consistently delivered more profitable returns for investors than Walmart.13 Over the past decade, Costco has grown at an annualized rate of 9 percent per year, making it the third-largest retailer in the United States today.14 This financial success is even more impressive when you consider that Costco employees are paid approximately 75 percent more than Walmart employees,15 plus are given those industry-topping benefits. If Costco spends more on employees than a company like Walmart—known for its efficiency and cost cutting not just through its supply chain but its labor expenses as well—how is it able to remain so competitive?

One reason is employee loyalty. Not only are individual Costco employees much more productive than those at competitors like Walmart,16 Costco employees rarely leave the company. At Walmart the turnover rate is approximately 40 percent; at Costco, the turnover rate is 17 percent and drops to an astonishing 6 percent after an employee has been there for a year.17 One study found that when you factor the hidden cost of employee turnover that comes from having to hire and train the next round of replacements (conservatively set at 60 percent of an employee’s salary), Costco actually pays less per employee than Walmart.18 Paradoxically, Costco is beating Walmart at its own game—the game of efficiency.

“Walmart and Target and many other retailers made a different bet than we did,” Sinegal told me. “But once you accept that way of thinking, it’s very difficult to come back from it. Walmart has over two million employees, and a turnover rate hovering close to 50 percent annually. That means you are replacing a million people every year. Just think about that.”19

It is tempting to look at a company like Walmart, whose mastery of Taylorist efficiency has produced one of the largest and most robust enterprises in history, and blame capitalism for how that company views its employees. But there is nothing inherent to capitalism that says employers must build their practices, especially their human resource practices, around averages. Costco plays in a similar arena as Walmart’s Sam’s Club and yet its executives have figured out how to treat their employees like individuals and still make a solid profit.

The difference between the two companies lies in what each company truly values. Walmart adopted a Taylorist mindset treating its employees as statistics, as a column of Average Joes who can easily be replaced. Costco makes a meaningful attempt to understand the jaggedness of its employees, recognizing the importance of matching employees to the specific contexts in which they thrive, and empowering employees to pursue their unique pathways. Costco is a place where a part-time worker can become a vice-president, and an accounting assistant can become one of the most powerful wine buyers on the planet. Its employees, in turn, reward Costco with their loyalty and engagement, which fuels Costco’s superior performance, customer service, and bottom-line results.

“You cannot run a company like Costco without thinking about individuals. Period,” Sinegal told me. “You can make money the other way, but you cannot create a place where everyone wins.”20

HOW ZOHO OUTCOMPETES GIANTS

Zoho Corporation is the largest information technology products company in India, and one of the first to compete with industry leaders like Microsoft and Salesforce.com.21 It has accomplished this feat primarily through its unique attitude toward its employees—not by paying them as little as possible, but by believing that talent can be found in anyone if you look for it in the right way.

After obtaining a Ph.D. in electrical engineering from Princeton, Sridhar Vembu returned to his hometown city of Chennai in 1996 to start the software company that would eventually become Zoho Corporation.22 Today, Zoho is an international leader in cloud-based business, network, and IT infrastructure management software, where its products compete head-to-head with Microsoft Office and with Salesforce.com’s customer relationship management (CRM) offerings.23 The company employs over twenty-five hundred people across multiple countries, and in 2014 generated estimated revenue of $200 million.24

Zoho is a large and successful company today, but when Vembu was starting out, he simply could not compete with much larger Indian software companies for the “best talent”—those candidates who ranked high on conventional one-dimensional academic metrics. Vembu knew that if he wanted to succeed, he would need to find talent that other people had overlooked. “Much of the Indian tech industry looks for paper qualifications, applying strict GPA thresholds and such before they will even consider a candidate,” Vembu told me. “We decided to look at people who don’t necessarily meet those thresholds.”25

One of these people was Vembu’s own brother. He lacked any background in computer science, did poorly in school, and many in his own family expected that he would “not amount to much.” But Vembu gave him a chance. “He learned how to program, and he turned into a terrific programmer. Watching my brother unexpectedly blossom was a real pivotal moment for me,” Vembu explained. “I have always been open to the idea that talent can be found anywhere, but seeing it happen in front of my eyes really made me confident that we would find a lot of overlooked talent.”26

Vembu’s intuition was soon backed up by hard evidence. As Zoho hired more and more people from lesser known schools—or with no schooling at all—Vembu discovered that there was little or no correlation between academic performance (as measured by grades and the perceived quality of the diploma) and on-the-job performance. “The narrow pathway of college didn’t seem to be necessary to become successful at something like programming. So then I began to wonder, why does everyone make it a precondition for being hired?”27

Vembu’s philosophy was very similar to Costco’s: both companies believed in hiring candidates from places other than famous schools and giving them a chance to show what they could do. But Vembu took this philosophy a step further. If you believe that talent can be found anywhere, then one way to act upon this belief would be to cultivate the talent yourself. Vembu told me, “While most people are willing to accept the idea that there is a lot of untapped talent out there, they have trouble acting on it.”28

Vembu acted on it in 2005 by creating Zoho University, a remarkable institution designed to identify and develop students to become successful employees at Zoho—and to equip them with the skills to be successful human beings.29 What makes Zoho University so extraordinary is that the students who enroll are often from the most impoverished parts of India. Zoho pays economically disadvantaged youngsters with little schooling to attend the university, where they learn programming skills, along with math, English, and current events. Vembu created a school that went out and found raw, unproven kids and gave them a shot.

This was a risky bet for Vembu. Though Zoho was growing quickly, it still wasn’t established yet and certainly did not enjoy the kind of deep pockets to ensure that it could survive if such a big bet turned into a disaster. But the bet was even riskier than counting on finding talent in the unlikeliest of places: Vembu was so opposed to the values of averagarianism that he decided not to operate the university according to the traditional standardize-and-rank mission of most schools.

Almost all the instruction is self-paced and project based. There are no grades; instead, students get feedback on their projects. “We realize that students learn at their own pace, and you have to respect that,” Vembu emphasized to me. “If what you care about is how well students will do in your company over the next decade, you soon realize that fast and slow are useless distinctions to make. There just isn’t a relationship between learning fast and succeeding.”30

After twelve to eighteen months of paid training, every student is offered a job. But the students are not forced to sign contracts and are under no obligation to work for the company when they graduate. As Vembu explained to me, “We really want to give them skills that will allow them to succeed at other jobs, or to start their own company. But most of them end up working for us.”31

So how has this experiment gone? In 2005, Zoho University had six students and one teacher; in 2014, it had a hundred students and seven teachers.32 What is most amazing, though, is not the number of students, but the talent that Zoho has discovered through this process: to date, more than 15 percent of the hundreds of engineers at Zoho have come through Zoho University,33 and some of the earliest students who joined are now high-level managers in the company.34 The program has been so successful that, in 2015, Zoho decided that within the next ten years it plans to have a majority of employees come from the university.

Vembu’s commitment to individuality is evident not only in the way that he finds talent through Zoho University, but in the freedom that individual employees are given to develop and grow within the company. For example, Zoho does not define jobs rigidly, and does not assume there is an optimal pathway for individuals to move through the company. “About half of the people we hire want to explore and develop something new. We encourage it,” Vembu told me. “We don’t have rigid job descriptions because they promote rigid thinking and suddenly you think there is a fixed job for you. If you give people flexible pathways, people evolve into lots of roles they would have never thought they were interested in.”35

Since Vembu does not agree with evaluating people based on averages, there are no performance reviews at Zoho, no scorecards, and no employee rankings. “Placing a grade or a number on a human being is nonsense. Our philosophy is that if there is a manager that has a concern with a team member, they should have a one-on-one discussion then and there and help them.”36

Zoho also consciously avoids the dangers of one-dimensional thinking when it comes to building teams. “If you take a product team, say for our word processor, the common idea is to get a team with rock star programmers who had high grades from the best schools. That is a mistake! You should have lots of differences in skills sets and talents; if they are all in the same mold, nobody can shine and it becomes too narrow and monocultural. We’ve found that mixing up different talents and ages and experience actually produces better products. It runs counter to tradition, but our products speak for themselves.”37

Vembu is not exhibiting excessive bravado when he speaks of the high quality of his company’s products. Salesforce.com was sufficiently concerned with Zoho’s increasing reach into its own market that it tried to buy the company. “They saw us as threatening because of the quality and price that we were delivering, and how quickly we were growing. I didn’t sell because I built this company for a different reason than just to make money,” Vembu shared with me. “Think about what we represent: we are recognized for creating great stuff, but we do it literally with a talent pool that none of our competitors would have ever hired.”38

Zoho’s international success does not come from producing software more cheaply than its competitors by paying low wages; it pays fair wages and provides great benefits for its employees. Zoho’s competitiveness is a direct result of the way Vembu identifies and nurtures talent—and how that talent responds: by being fully engaged and extremely productive. By averagarian standards, Zoho shouldn’t work; it’s a company filled with employees who would never have been hired by most tech businesses and who are allowed to follow their own paths in the company, finding roles that allow them to contribute the most. Yet it does work. And Vembu is sure he knows why. “I have a strong math background and I know numbers. And I know that you are in big trouble if you start to think about individuals as numbers to be optimized on average,” Vembu told me. “Treat individuals with respect, as individuals, and you will get out more than what you put in.”39

FOSTERING INNOVATION AT MORNING STAR

Even in an industry such as manufacturing, where averagarianism has been the global standard for more than a century, a commitment to individuality can generate new and superior methods for getting things done. In fact, innovation is one of the biggest benefits of a commitment to individuality. Though Taylorist-modeled organizations like factories are often very good at managing costs and maximizing productivity within a set of constraints, they often have difficulty inspiring and harnessing creativity.

But even an industrial company can leverage the principles of individuality to create a culture that promotes individual initiative, nurtures individuality, and where innovative ideas are welcome regardless of their origin. The Morning Star Company has nurtured such a culture.

Founded in 1970 by Chris Rufer, Morning Star started out as a small one-truck, owner-operated company hauling tomatoes.40 Today, the Woodland, California, based company has over two hundred trucks, several factories, and thousands of employees. It controls 25 percent of tomato processing in California and produces 40 percent of tomato products consumed in the United States every year, making it the largest tomato-processing company in the world.41 If you’ve had Campbell’s tomato soup, Ragu spaghetti sauce, or Heinz ketchup, then odds are you’ve had Morning Star’s products.42

On the surface, Morning Star’s operations seem to be a perfect fit for a Taylorist model: a complex industrial process spanning fields and factories that churns hundreds of millions of tons of tomatoes each year with such efficiency it consistently has the lowest price in the industry.43 But Frederick Taylor would likely have reeled with confusion if he knew what actually went on inside Chris Rufer’s company.

At Morning Star, there are no managers. For that matter, there are no rigid titles, and virtually no hierarchy. Paul Green, a veteran of Morning Star who leads its training and development efforts, explained to me the philosophy behind such a radical business model: “All organizations are based upon fundamental assumptions about human beings, whether they know it or not. At Morning Star, we believe the individual is the single most important entity, and we do everything we can to promote the power of the individual.”44

This is no bumper sticker cliché. At every level of its organization—or, more accurately, at every link in its organizational web—Morning Star is tacitly committed to the principles of individuality through what the company calls a “self-management” philosophy. Its system is set up to organically adapt to each employee’s jaggedness, match employees to the contexts where they are effective, and empower individuals to pursue their own paths.45 The focus on individual freedom and responsibility is best characterized by the personal mission statement.

Each employee drafts her own mission statement that defines how she will contribute to the company’s overall mission and describes how she will achieve her goals and objectives. All employees who will be affected by her goals and activities must sign off on the statement. Employees are given enormous latitude to achieve their mission—including, for example, the right to make purchases to fulfill their mission—but are also held accountable by their peers (rather than a boss) for achieving or failing to achieve their goals and objectives.46

This is a very different way of thinking about job performance, and many new employees find it difficult to handle. Morning Star spent years trying to determine what kinds of personal qualities predicted success at the company, analyzing things like intelligence, personality, and education. They failed to find any meaningful correlations—except one: “People who have already worked a long time as managers at other companies can’t figure out what to do,” Paul Green told me. “They can’t handle the freedom and the fact that they can’t simply issue unilateral orders. But whenever people come here who don’t know what it’s like working anywhere else—or who didn’t fit in at other places—they very quickly and naturally find a place for themselves.”47

Like all Morning Star employees, Green does not have a title, though he is currently responsible for communicating the company’s core principles throughout all of its divisions. He started out as a seasonal employee in 2006 maintaining a large industrial machine, known as a finisher, that whirls tomatoes around in a giant metallic cylinder to separate the skins from the fruit while losing as little tomato juice as possible. “This was a pretty dull job,” Green told me. “But it was communicated to me from day one that at Morning Star I was free to modify my job however I wanted, provided that it furthered the mission of the company, and as long as I could convince any employees who would be affected by my changes that it was a good idea.”48

Green wondered if a different setup to the finishing machine might separate tomato skins more effectively. He came up with an experiment: he ran a number of different finishers at different settings and recorded the results at fifteen-minute intervals for several months. Most companies would frown upon a newly hired seasonal maintenance worker setting up his own private engineering experiment on expensive equipment vital to the daily operation of the business—and that is an understatement. At most places, a factory temp is liable to be fired if he starts messing with the heart of the assembly line. But Green made his case to each stakeholder who would be affected by his proposed use of the finishers. “They were all very supportive,” Green explained, “because I provided them with a very clear description of all the parameters of the experiment and what we stood to learn.”49

After conducting his experiment, he discovered that there was indeed a different setting for the finishers that made them 25 percent more efficient, and Morning Star quickly adjusted all the machines to the new setting. He was soon hired full-time and has worked there ever since.

Green also told me the story of another colleague, someone we’ll call Abe, who was initially hired as a manual laborer in the factory. Abe had always enjoyed tinkering, and while he was working for Morning Star he began playing around with the machines and equipment, even though this did not fit the duties he had been hired to perform. Gradually, he acquired a reputation as the go-to guy if you wanted some piece of machinery repaired or improved upon. So he made the case to his coworkers that he should be hired as a “master tinkerer,” a position that had never existed at Morning Star before; and not only that—Abe asked for a budget to put together his own workshop where he could expand his range of tinkering.50

Morning Star does not automatically give blank checks to employees to pursue anything they fancy, like building their own workshop. Many similar requests are often turned down. But Abe had demonstrated the tangible benefits of his tinkering to his coworkers, so they supported his proposal—along with a salary far higher than he would have received at any other company. Green told me, “Here’s a guy who, based on his background and qualifications, you might easily have guessed would have never been much more than a laborer—let alone attain a career—but at Morning Star he found a role for himself where he is a recognized expert in the mechanics of factory machinery.”51

That sense of belonging and personal purpose—that sense that you can add value to the company by sharing your ideas, and that the ideas will be listened to and, if they are good ideas, implemented—is at the heart of Morning Star’s success. In traditional Taylorist organizations, that freedom to innovate is often curtailed or employees are discouraged to participate in the innovation process by the nature of their hierarchical structures. In such organizations, a specific division might be dedicated to innovation—research and development, for instance—or high-priced management consultants might be hired to suggest innovative processes or new products, but for most roles—like my job in the layaway department—ingenuity is actively frowned upon.

In contrast, innovation occurs frequently and organically in an individual-centric company like Morning Star, where temporary workers conduct assembly-line experiments and day laborers tinker with business-critical equipment. When you take individuality seriously—when you set up a business designed to embrace that individuality—innovation occurs everywhere, all the time, at every link of the network, because every employee is transformed into an independent agent tasked with figuring out the best way of doing her job and contributing to the company.

“We’re not any kind of charity organization—every employee must earn their place here,” emphasizes Green. “But Morning Star gives everyone the freedom to earn their place. People are happiest when they have control over everything that’s important to them.”52

WIN-WIN CAPITALISM

Seventy years ago, Taylorism was considered “a characteristic of American civilization.” But the principles of individuality show us the path to a better society, one that embraces individual freedom, initiative and responsibility, without sacrificing free enterprise. Costco, Zoho, and Morning Star demonstrate that when an organization makes the decision to value the individuality of its employees, it is not only the employees who win—the system wins, too, and wins bigger than ever. This is win-win capitalism, and it’s available to any business in any industry in any country.

One final lesson can be learned from the success of Costco, Zoho, and Morning Star: if you make the decision to value individuals, that decision must be an unwavering commitment. These benefits—employee engagement, increased productivity, and widespread innovation—will not materialize if individuality is a fair-weather passion. “Even when people want to bet on this idea of investing in the individual, they get nervous when times get tough,” Sinegal told me. “They close a factory, they lay off people, all to recoup a few cents here and there. Costco gave employees a raise during the recession because we knew they were struggling. It requires that you keep a clear eye on your purpose and not lose sight of that.”53 Zoho’s Vembu came to a similar conclusion, telling me, “I want to hold on to an employee for life. It is a total commitment. But it’s the commitment that makes a difference.”54

I’m not saying that every company should attempt to replicate what Costco, Zoho, and Morning Star have done. Individuality demands that you think through what the principles mean for your particular business, and you build your business around that. But I am saying that it is possible for any business and any manager to implement the principles of individuality, and when you do—when you choose to invest in individuals—those individuals become loyal, driven, and passionate. It is possible to have engaged and productive employees who help companies win at the bottom line, even in the most averagarian of industries. You just can’t have them on average.