Author: Irwin Speizer

When it comes to training and development, IBM likes to have it both ways. The company maintains one of the world’s largest internal training and development programs, last year spending a whopping $700 million. Big Blue estimates that its workers will log 15 million hours of training in 2005.

    But IBM takes training and development a step further. It resells some of its successful learning programs to outside clients—with a markup in price, of course.

    “Part of our strategy is harvesting what’s going on internally,” says Steve Rae, a vice president at IBM Learning Solutions. Programs “are provided to IBM at cost and to clients at retail.”

    At IBM, training and development represents a key element in an overall corporate strategy aimed at repositioning the company. After decades as a computer hardware supplier, IBM has been aggressively moving into the service and consulting industry. In December, it sold its personal computer division to the Chinese company Lenovo.

    “It used to be that we sold products with services attached,” says Ted Hoff, IBM’s vice president of learning. “Now the people of IBM have become what we deliver to clients.”

    IBM expresses its new focus through its marketing slogan, On Demand, which refers to the company’s goal of meeting clients’ needs exactly when they want it, a particularly daunting task in the rapidly evolving world of information technology. For IBM to match its slogan with results, its personnel must stay abreast of all the latest changes.

    For IBM to back up its On Demand promise, its people must be able to anticipate what clients need and be ready with answers. That has required the company to devise ways of rapidly training and developing in-house talent.

“Part of our strategy is harvesting what’s going on internally.” –Steve Rae, a vice president at IBM Learning Solutions

    To figure out what skills and knowledge its employees need, IBM surveys targeted workers. It has cataloged the skills of about 100,000 employees. That database, in turn, is used to connect employees who have questions to others with the answers, using the Internet and instant messaging. The company estimates that 80 percent of what it considers “learning” falls outside of traditional classroom instruction.

    Rae offers as an example a recent case in which an IBM consultant in Atlanta who was developing an instructional course for a client encountered a problem at 11:30 on the night before the final product was to be presented. The worker sent out a frantic message for help. On the other side of the world, an IBM worker in Sydney, Australia, saw the message, had the answer and immediately sent a reply.

    Problem solved, and the Atlanta worker gained knowledge that could be used in the future.

    Does that interaction count as training and development? IBM says it not only counts, it’s the essence of modern learning: real-time workplace interactions that deliver key pieces of knowledge when and where needed.

    “We are going to enable people to learn through their work, not just with statistics and data,” Hoff says. “I think this is the future of learning.”

    If Hoff is right, IBM may be creating not just a powerhouse internal training and development program but also a learning system that it can sell to other companies around the world.

Workforce Management, July 2005, p. 59 —Subscribe Now!

The midday fog spills over the hills like soapsuds and on past a Denny’s restaurant in a shopping mall near San Francisco.

    Inside, the booths are retro-’50s style, the benches covered in orange plastic with cloth backs adorned in vaguely Aztec patterns. Rachelle Hood, chief diversity officer of Denny’s Corp., sits in a booth, part of the daily lunch rush that includes patrons and workers of every imaginable color and nationality.

    The irony of the scene is not lost on her. In 1991, just a few miles south at a Denny’s in San Jose, a group of 18 African-American students who had stopped for a late-night snack were told they would have to pay a cover charge and prepay for their meals.

    They launched a discrimination suit and were soon joined by dozens and then hundreds of other African-Americans around the country who complained of unequal, shoddy and sometimes rough treatment by the company.

    The U.S. Justice Department investigated what would become the largest such case at the time under the public accommodations section of the 1964 Civil Rights Act.

    Denny’s, which is headquartered in Spartanburg, South Carolina, settled the lawsuits in 1994 for $54 million. But the incident generated such bad publicity that the chain became tagged as one of the most racist companies in America.

    What a difference a decade makes. Under Hood’s direction, the company spent millions on diversity initiatives that brought legions of new minority managers, franchisees and suppliers into a company run almost exclusively by white males. She was the nation’s first diversity officer to report directly to the CEO.

    An irrepressible optimist, Hood has used her position of authority to guide Denny’s through a remarkable turnaround.

    Women and minorities today make up half of Denny’s eight-member board of directors, and 45 percent of the 11-member senior management team. Minority owners hold 45 percent of Denny’s franchised restaurants.

    Denny’s has also recovered ground with minority customers. A 1996 company survey found that only a third of African-Americans gave Denny’s good marks on measures such as respectful service; today, satisfaction totals from African-Americans range from the mid-70s to more than 80 percent.

    About half of African-Americans linked Denny’s with discrimination in 1996; that has been whittled down to 14 percent today, and the company anticipates reaching 10 percent soon.

    The change has been so swift and complete that by 1998, the company came in second on Fortune’s list of the 50 best companies in America for minorities. In 2000, the company was No. 1.

    “What happened at Denny’s was a sea change,” says Elizabeth A. Sanders, a current member of Denny’s corporate board.

    The tale of Denny’s diversity turnaround is a textbook example of how fast and far a company can progress with an aggressive strategy and strong leadership. But it also demonstrates the limits of what diversity can deliver. Denny’s may have conquered its discrimination demons, but it has yet to figure out how its diversified workforce can increase profits.

    Denny’s is the nation’s largest family-style full-service restaurant chain, a company with more than 1,600 restaurants, $2.2 billion in annual revenue chainwide and 70,000 employees, including those who work at more than 1,000 franchises.

    Groaning under hundreds of millions in debt and myriad operational problems, the company has been losing money for years. Although the losses have finally begun to decline and the company has begun reducing its debt, Denny’s still reported a net loss of $11.6 million for the first half of 2004.

    For advocates of diversity who argue that effective diversity programs produce profits, the Denny’s experience seems to provide contrary evidence.

    Company president and CEO Nelson Marchioli, who took over the job in 2001 and remains a strong proponent of diversity, says he has never been able to quantify the financial benefits from the millions of dollars and years of effort invested.

    “If you think diversity is going to sell one more pancake, you’re crazy,” Marchioli declares.

Supporters and skeptics
    An effective diversity effort can prevent costly discrimination lawsuits, help a company understand and reach its market and improve a company’s image. But diversity can’t substitute for basic business execution, he says.

“The beauty of the Denny’s program is that it is not a program, it is not an initiative. It is a project, a holistic approach to organizational change. We have institutionalized it. When you begin to see diversity factored into all the lines, everybody has a piece of the rock.”

    Marchioli points out that when the discrimination complaints against the company first surfaced in the early 1990s, Denny’s weekly customer count was about 5,500 per store. Today it is 1,000 to 1,200 fewer.

    “As we were making these incredible strides in diversity, guess who was still having a declining guest count?” he notes.

    He says that Denny’s continues to invest in diversity because “it is the right thing to do,” and because it helps the company understand and serve its diverse national customer base, which should make it easier for the company to attract customers.

    But Denny’s still has to do a better job of executing its business strategy to succeed.

    Financial analysts tend to agree with Marchioli. Ken Bann, an analyst with Jefferies and Co. who covers Denny’s, says the fact that its losses are lower this year than last year and its same-store sales, a key indicator of performance, are improving shows that Denny’s may finally be perking up.

    But, he adds, “it would be pretty difficult to say that diversity produces x amount of sales or earnings. You can’t say that gee, because they have this [diversity] program, sales have grown this amount over what they would have been.”

    Hood argues that part of the reason it has taken so long for Denny’s to fix its operational problems is that the company had to devote so much energy to resolving its diversity problem and getting past the costly discrimination lawsuits.

    “The diversity issues had taken the company to its knees,” Hood says. “The first thing we needed to do was get us out of the pit of a company that discriminates. The brand was badly broken, so it took a while.”

    Hood points out that effective diversity programs ultimately can bring other benefits, particularly in terms of employee relations and customer service.

    Todd Campbell, diversity manager for the Society for Human Resource Management, says being good at diversity and also good at operations should put a company ahead of competition that understands only operations.

    “In an inclusive organization where employees feel valued, they tend to perform better,” Campbell says. “Employee satisfaction equals customer loyalty, which equals profitability.”

    Diversity proponents like Campbell have obviously been winning out over skeptics in the corporate arena. Prodded by the threat of discrimination lawsuits and the lure of potential benefits like those Campbell touts, companies across the country have embraced diversity programs. Denny’s crash course in the subject a decade ago remains one of the best examples of how diversity can be rapidly and effectively injected into a large organization long resistant to change.

    Hood, who previously served as vice president of human resources development and diversity at Burger King, was hired by Denny’s in 1995. She promptly found herself facing a torrent of ill will.

    “I had never had a job with more hate mail–from every group,” Hood recalls of her early days at Denny’s. “I had no clue about the depth of the issues. I wonder if, had I known more, I would have come.”

    The approach Hood used was fairly unusual at the time. Instead of working through a human resources department, as would have been typical for most diversity officials at the time, she operated from a position of authority equal to that of division heads. She used that authority to coax and push diversity initiatives throughout the organization in a hurry.

    “What we did was very different from what all the other companies were doing at the time,” Hood says.

    Other companies had diversity training similar to Denny’s, but few made participation as widespread. Denny’s made all employees–from senior executives to dishwashers–attend classes. These ranged from a quick session for line workers that taught the basics of equality and respect for heritage to two-day courses for store managers that included details about diversity in hiring and the basics of antidiscrimination law.

    Hood, who had launched diversity training at Burger King, got the company to hire more than 100 diversity trainers. From 1995 to 2000, when Denny’s won its first-place position on the Fortune list, the company spent $3 million annually on diversity training.

    Hood counseled the company’s marketing arm on how to target advertising to minorities and hunted up advertising agencies that specialized in that field. Previously, the company had done no targeted marketing.

    From 1995 to 2000, Denny’s redirected 14 percent to 15 percent of its marketing budget to campaigns aimed at minority customers. The company spent as much as $14 million in one year on the effort.

    Denny’s had no minority suppliers or contractors in 1995. Hood pushed its buyers to dole out business to minority-owned companies and hunted up contacts to help advance the effort. As a result, between 1995 and 2000, Denny’s spent $616 million with minority suppliers.

    Denny’s had never directed charitable contributions to minority-related organizations. That changed in 1995, when the company gave $1.3 million to civil- and human-rights causes. And recruitment of college graduates, which had been aimed largely at top national business schools, was revised to include smaller, less well-known schools that more minorities attended, particularly historically black colleges.

    Similar strategies were employed to boost minority representation in franchises, supply contractors and management. Hood recalls sitting down with various company managers in those early days and hammering out goals. Just about every department and division in the company drew up diversity strategies and plans to carry them out.

Managers adopt diversity
    John Relman, a Washington, D.C., attorney on one of the discrimination lawsuits, recalls that Hood was an effective diversity advocate who was easy to work with despite the contentious nature of the lawsuits. Relman represented six African-American U.S. Secret Service agents who had sued after they went to a Denny’s in Virginia for breakfast and were denied service for an hour while white agents seated nearby got their meals.

    “My experience working with Ray was an extremely positive one,” Relman says. “She is tremendously energetic, very open to new and different ideas, and very fast to implement new ideas.”

    What made managers stick to their goals was partly Hood’s hectoring. But managers also knew that failure meant dealing with then-CEO Jim Adamson, who made it clear that diversifying Denny’s was one of his top goals and that Hood had his unstinting support.

    He revised management bonuses for the first few years of Hood’s tenure, tying 25 percent to meeting diversity goals. Hood had instituted sophisticated tracking of diversity results, and Adamson relied on that data to make his management bonus awards.

    “What made her work so vital to our success was that before she came, we had no consistent way of tracking our workforce,” Adamson wrote in his book, The Denny’s Story: How a Company in Crisis Resurrected Its Good Name.

    Once the diversity initiative got under way, it developed its own momentum as managers adopted diversity as an essential component of their jobs. Denny’s ended up surpassing the diversity goals in the consent decree.

    One of the surprising aspects of what Hood accomplished is how few resources she used. Hood’s office today (she moved from Spartanburg to Memphis to be near an airport with better connections to accommodate her frequent trips) is set up essentially as it was a decade ago.

She has two staff members and an annual budget of about $1 million, plus another million in corporate charitable donations that she doles out to minority and human-rights causes.

    The small size of her staff and budget was intentional, Hood says. Her aim was to avoid creating a large bureaucracy that would carry out all diversity tasks. She wanted to push responsibility for diversity through the entire Denny’s organization, and one way to ensure that it happened was to keep her own office from building an organization capable of doing all the diversity work.

    “The beauty of the Denny’s program is that it is not a program, it is not an initiative,” Hood says. “It is a project, a holistic approach to organizational change. We have institutionalized it. When you begin to see diversity factored into all the lines, everybody has a piece of the rock.”

    The result of Hood’s efforts was that Denny’s went from diversity laggard to leader. Other companies took notice. In recent years, she says, she has advised more than 100 companies on diversity issues.

    Many of the strategies that Hood pursued at Denny’s are now considered essential to a diversity effort. A special report by The Diversity Officer, published by Diversity Best Practices of Washington, D.C., lists most of the techniques adopted by Denny’s as key elements in a successful corporate diversity operation.

    Denny’s continues to show up on lists of top companies for minorities and women, an indication that it has maintained its determined focus on diversity. Marchioli says that despite his doubts about the direct financial gains of diversity, he has no intention of backing off.

    “The reason she reports to me,” Marchioli says, “is that people have to understand that this is important. When Ray speaks, as sweet and as nice as she is, she speaks with authority. I think the reason why Denny’s has been so successful in getting over its past is that Ray has been able to have the support from the CEO–uncompromising, unquestionable support.”

    Despite the focus on diversity and its awards, Denny’s still hasn’t won back some minority customers.

    Shawn Coker, assistant vice president of diversity for Tyson Foods, acknowledges that Denny’s is a recognized leader in corporate diversity. But Coker, who is African-American, says he can’t bring himself to forgive Denny’s for its past transgressions.

    “My hat’s off to Denny’s in terms of the work they have done and the progress they have made,” Coker says. “But I can tell you, to this day I rarely go to Denny’s.”

    Hood sees hard cases like Coker not as a lost cause but rather as an opportunity. If she can just push the right button, she may be able to get him to reconsider.

    “I’m always a glass-is-half-full person,” she says. “Just a dreamer and believer.”

Workforce Management, November 2004, p. 41-45 — Subscribe Now!

W hen Trader Joe’s, the quirky specialty grocer from Southern California, goes shopping for new employees, it looks for more than generic clerks. While retail experience is a plus, what really impresses managers is a helpful, friendly attitude. Job postings suggest that prospective employees should be ambitious and possess qualities that might apply equally to a cruise ship crew: outgoing, engaging, upbeat, fun-loving and adventurous.

    Mark Mallinger, director of the MBA program at Pepperdine University, has studied Trader Joe’s. He recalls a conversation with the company’s former CEO, John Shields, about how managers interviewing job applicants watch for character clues. “John Shields told me that in the first interview, if they [the applicants] don’t smile within the first 30 seconds, they are gone.”

    The trademark smiling stock clerks and cashiers decked out in Hawaiian shirts can now be found in Trader Joe’s stores from the West Coast to New England. And more are on the way. From its humble beginnings as a regional hybrid convenience store, Trader Joe’s has grown into a $3-billion-a-year national chain with 217 stores. It is adding 8 to 25 stores a year, all stocked with an eclectic selection of bargain gourmet-style foods, wines and health-food supplements. Analysts who study Trader Joe’s management system tend to focus on the many ways the company makes money by saving money–using private labels instead of name brands for nearly every product in its stores, dealing directly with producers to cut out middlemen, renting cheap real estate in existing neighborhood shopping centers, and keeping stores small. A typical Trader Joe’s covers 10,000 square feet, a fifth the size of a modern full-service supermarket, and carries a tenth as many items.

    But there’s another secret to Trader Joe’s success: the upbeat employees who wander the aisles, eager to chat about the latest Brie or the newest flavor of hummus. “Probably the most important thing they do is generate a very engaging experience between the customer and the employee,” says Bill Bishop, president of Willard Bishop Consulting in Barrington, Illinois. Bishop and several other consultants and analysts say the upbeat, informal interaction sets Trader Joe’s apart from the rest of the grocery industry and serves as a powerful marketing tool.

    But the glue that holds the system together is generous compensation. Job postings indicate that part-time clerks earn from $8 to $12 an hour. Full-time employees, who typically work 47.5 hours a week, earn an average $40,150 in the first year, according to the company’s postings. That equals $16 an hour, well above the $12 average pay in the retail industry, according to the latest Bureau of Labor Statistics figures. These employees also earn an average annual bonus of $950 and $6,300 in retirement-plan contributions as well. It adds up to an average total package of $47,000 a year.

    For assistant store managers, the average compensation package works out to $94,000 a year. Store managers get an average compensation package of $132,000, an amount that one analyst put on a par with what the manager of a giant Wal-Mart might make running a store that probably grosses six or seven times what a Trader Joe’s takes in.

    How can such small stores afford such big salaries? The answer is that the cheerful and helpful clerks also know how to move groceries, which boosts margins. Trader Joe’s total sales at about 200 stores works out to approximately $15 million per store. With an average 10,000 square feet per store, that means each store generates an average $1,500 in sales per square foot. Compare that to Whole Foods, the profitable organic-food chain that offers some similar products but typically at higher prices. Whole Foods generates about $750 per square foot in sales, about half the Trader Joe’s rate.

    Trader Joe’s differs from Whole Foods and other grocers in another way. Its stock is constantly changing as its buyers travel the globe looking for new and interesting products that can be brought back, packaged and sold profitably at a relatively low price. To make sure that workers keep up with the stock, stores hold weekly tastings for employees to sample the latest goods. “After the store closed, we would try everything from the wine to frozen pizza to candy,” says Melody Derloshon, a former Trader Joe’s stock clerk who worked in a Northern California store. “It was like a buffet table.” Workers also get a 10 percent store discount, which serves as both an added bonus and an inducement to keep employees acquainted with the products. Trader Joe’s workers give the impression that they enjoy being at the stores, which suggests to customers that they should get with it and have some fun, too. “The people who work in our stores are the front line, the first customer contact,” says Trader Joe’s spokeswoman Pat St. John. “They are the soul of Trader Joe’s.”

    Fearful of being gobbled up by competitors, the company is famously tight-lipped about its business practices and how it wins the souls of its employees. St. John declined to elaborate beyond saying it’s no accident that Trader Joe’s employees are the way they are. But interviews with former employees, analysts and consultants and a careful reading of company job-recruitment postings reveal an outline of the Trader Joe’s business model.

it’s not just the brie: “The people who work in our stores are the front line, the first customer contact. They are the soul of Trader Joe’s.”

    The essence is standard business management: a carefully crafted system of hiring, training and performance reviews, backed with competitive wages and benefits. But how those elements play out at Trader Joe’s is in many ways a distinct departure from the rest of the grocery business and in some ways a little wacky, like a cross between a religious cult and a merchant ship. For example, full-time employees are called novitiates, while managers are called first mates and captains.

    The system was born of necessity. Founder Joe Coulombe launched a small convenience-store chain in Southern California in 1958 called Pronto Markets. Then came the 1960s and the arrival of the powerful 7-Eleven chain. Coulombe realized that he had to change or get run over, so he went upscale, swapping soda pop and chips for wine and cheese, and he tried to improve business by talking up his goods and encouraging his workers to do the same. The combination clicked and evolved into a business that specialized in gourmet items that Coulombe would find in his travels and stock in his stores, where his workers would cheerfully tout the products to customers. He changed the company name to Trader Joe’s, sold out to German grocery magnate Theo Albrecht and retired. There have been two CEOs since then, both drawn from the retail industry, who refined and developed Coulombe’s system, then spread it throughout the country.

    Today, Trader Joe’s strives to hire employees who understand the importance of a sunny disposition and appreciate the company’s products. The company’s job postings use exclamation points to tip off applicants about the need for enthusiasm. One recent Internet posting began like this: “Trader Joe’s is looking for part-time Crew Members in Darien, Connecticut, to work in our unique grocery store! Come be a part of the excitement! If you like people, are ambitious and adventuresome, enjoy smiling, and have a strong sense of values, Trader Joe’s may be for you.”

    Derloshon recalls that her job interview was “very informal, like a casual conversation. They wanted to know why I wanted the job, what could I bring to the store, am I familiar with the products.” She says she was never aware of a smile test, although she could sense that the manager was probing for more than retail experience. “They definitely take a second look at a person who has good eye contact and is upbeat.” Derloshon certainly qualifies, ending her voice-mail message with “and have an absolutely fabulous day.”

    Derloshon was one of Trader Joe’s part-time workers, who account for 75 percent of the company’s workforce. Applicants for full-time positions are more thoroughly vetted. The job application requires a cover letter that must include descriptions of a favorite Trader Joe’s product and the store where the applicant typically shops. The message: if you aren’t familiar with Trader Joe’s and can’t make a convincing pitch for what’s good about the stores and the products inside, Trader Joe’s isn’t interested in you.

    Managers are never hired from outside the company, which ensures that supervisors know and understand the Trader Joe’s system before they are given authority. Prospective managers go through a series of training programs, including a stint at what the company calls Trader Joe’s University. It is their job to teach new part-timers the Trader Joe’s methodology. While managers are reviewed annually, part-time employees are reviewed every three months, an unusually frequent rate of evaluation. Retail consultants say they know of few other major companies that provide feedback that often, particularly when so many employees work part-time. John Dantico, a principal with The HR Group in Northbrook, Illinois, estimates that up to 80 percent of companies using performance reviews require them only once a year, and that perhaps one or two out of a hundred might use them four times a year.

    The nature of the evaluations is also unusual. Categories in the one-page evaluation forms include standard objective measures such as punctuality and thoroughness. Other more subjective assessments include “is always friendly,” “creates a genuine fun shopping experience,” “engages customers when running the register,” “greets and asks customers if they need assistance while on the floor,” “educates self about product features and shares with customers” and “promotes high morale in the store.” Each category has a score of one to five. If an employee has a cumulative score below three, she doesn’t get a raise, says a former part-time cashier at a Trader Joe’s in Northern California.

    In 2000, Trader Joe’s hired Mallinger to measure how well the company’s culture was accepted and carried out by its workers. He had students mail out 150 questionnaires to the company’s employees in the San Fernando Valley, located north of downtown Los Angeles. To his surprise, he got 142 back–a far higher rate of return than expected for such a request. Mallinger believes that this is a reflection of employee dedication to the company. While he can’t discuss details of his findings, Mallinger says the results affirmed that workers understood the Trader Joe’s culture and their role in carrying it on. “Our conclusion was that, yeah, for the most part they got it.”

    Part of the motivation for employees to stay with the company is the prospect of advancement, which is very real as the company grows rapidly. But that could quickly change. “If growth were to slow, and they now had too many very well trained, very experienced or high-paid people and no place to put them, then you’d have a problem,” Dantico says. “People would get frustrated and leave.” For now, Trader Joe’s future looks promising.

   George Whalin, president and CEO of Retail Management Consultants in San Marcos, California, has been a fan of Trader Joe’s for years. He shops at a local Trader Joe’s and frequently mentions the company in his talks to retailers. At one recent conference in Phoenix, he brought bottles of wine from Trader Joe’s to use as props and, while there, visited a local store. “It was the same, this sort of family atmosphere, everybody talking to the cashier, everybody talking to each other.”

Workforce Management, September 2004, pp. 51-54 — Subscribe Now!

In the highly competitive lodging industry, where consumers often can choose from among a dozen or more hotels and motels clustered within a few blocks of each other, considerable effort goes into getting and keeping an edge. There are free shuttles, happy-hour drinks, in-room Internet connections, on-demand movies.

    And then there’s the question of customer service. Achieving and maintaining good service is especially difficult in an industry with notoriously high turnover rates and legions of low-skilled workers.

    “Quite frankly, whatever product we have, a competitor can copy,” says Jim Hartigan, senior vice president for customer quality and performance for Hilton Hotels Corp. “A certain kind of bed, a television, a shower head–that can be copied. What can’t be copied is the genuine, personal service.”

    Hilton Hotels these days is a lodging company that others strive to beat when it comes to customer service. In the latest American Customer Satisfaction Index survey, Hilton won top honors in the hotel-industry sector, edging out rival Marriott International Inc. The ACSI randomly samples consumers to measure their level of satisfaction with and valuation of products and services. Hilton has been at or near the top of the hotel list for the last few years.

    “Clearly there is something going on here,” says David Van Amburg, managing director of ACSI. “Hilton, more years than not, is significantly ahead of the industry.”

    Hartigan says it should come as no surprise that Hilton lands at the top of the ACSI list because the company spends millions of dollars each year training and rewarding employees in customer service and then surveying customers to measure how well it all works. The company is convinced that the investment pays off in better performance at its family of brands, which include Embassy Suites, Homewood Suites, Hilton Garden Inns, Hampton Inns and Doubletree.

    Hilton also scores high in the J.D. Power & Associates customer-satisfaction survey. Its Embassy Suites has topped the upscale-hotel segment for three straight years, while the latest survey listed Hilton Garden Inns as number one in the mid-priced segment. Homewood Suites won top honors in the extended-stay segment.

Allowing cloning
    Hilton’s position on these lists stems from a combination of hiring and training systems, regular feedback and customer polling to track satisfaction. The company has an extra challenge in spreading its service culture across its properties because so many are owned by franchisees. Of its 140,000 employees, half work for franchisees. Hilton requires franchisees to use some of its procedures, encourages the use of others and provides guidance in various customer-service techniques.

    In hiring, Hilton relies heavily on referrals from existing employees. The interview process includesbehavioral screening–in which, for example, prospective employees are asked how they dealt with a confrontational situation. Managers are trained in using and assessing behavioral screening.

    Hilton is testing a new screening system at its Hilton Garden Inns that tries to clone its best employees by mapping their desirable qualities. Last year, employees rated as top performers were given a written test designed to assess their aptitudes and preferences. The answers were used to produce a snapshot of the model employee. Starting in January, prospective new hires are being given similar tests and evaluated according to how close they come to the model. If the process indeed succeeds in pointing managers to service-oriented recruits, it will be rolled out system-wide.

    Once hired, new employees across the Hilton chain must go through 1.5 hours of customer-service training before they start. New managers, including those at franchised hotels, must undergo 40 hours of training in customer service designed not only to drill into them the basics of customer service but also to give them the means to encourage and promote it with their staffs.

    There are also periodic updates of customer-service training, including some sent around the chain in film format. One uses the character of Norm from the old TV sitcom Cheers as an example of how to build a relationship with a repeat customer. (Norm, you may recall, was so well known at the fictional bar that he was always greeted by name the moment he entered, and by the time he reached his favorite bar stool, there was a cold mug of his favorite beer waiting.)

    To reinforce the idea that good service is important, Hilton regularly rewards employees through two programs used at both owned and franchised hotels. One, called “Catch Me at My Best,” gives customers the opportunity to nominate employees who provide especially good service. Winners get cash awards and merchandise. The cost to Hilton: more than $1 million a year.

    A second program, called “Spirit of Pride,” has employees nominating other employees for customer-service recognition. Winners get a $350 check and a celebration in their honor, complete with banners, music, cards and a congratulatory call from the corporate office. The company selected 350 winners this year and expects to increase that total to 700 next year. The cost is split with franchisees. Hilton’s corporate contribution, now at $500,000 annually, will rise to more than $1 million.

    Finally, Hilton runs its own customer-satisfaction tracking to keep tabs on whether its efforts are producing results as reflected in what customers say. Hilton surveys about 60,000 customers each month by mail and e-mail, then makes the results available online to its managers so they can see exactly what customers have to say on a variety of customer-service issues. Hilton spends more than $1.5 million each year conducting the surveys.

    Hartigan says Hilton believes that the focus on customer service pays dividends in the form of profits, and he points to something called RevPAR figures as proof.

The “real measurement”
    RevPAR stands for revenue per available room. It is derived by multiplying a hotel’s average room rate by its occupancy rate. The better the RevPAR, the more money a hotel is likely to make (although other factors such as restaurants, golf courses and casinos can also affect the bottom line).

    Companies are rated on a RevPAR index, with 100 being the norm. Hotels with under 100 are losing out to hotels with over 100. Hilton reported that as of February, all of its brands except Doubletree had RevPAR indexes above 100, led by Embassy Suites with 123.9. (The statistics are from Smith Travel Research.)

    Van Amburg says that Hilton’s business performance is typical of companies with strong customer-service ratings. In the ACSI rankings, companies in the top half far outperform those in the bottom half. He has also found that companies with high ACSI scores tend to provide higher returns to shareholders. “There is a very strong connection between firms that do a good job of satisfying customers and their performance in the stock market,” Van Amburg says.

    Indeed, Wachovia Securities Inc. analysts recently named Hilton Hotels Corp. one of their top picks in the lodging sector, and several other analysts have been recommending Hilton stock as a good investment. While stock analysts tend to focus on more concrete factors such as Hilton’s strong cash flow and its positioning in key markets experiencing a lodging upswing, Hartigan points out that a large part of what draws customers–especially repeat customers–is how well they are served.

    “At the end of the day, the real measurement is how you are doing in the marketplace,” Hartigan says. “All of our brands command market-share premium.”

The family-friendly grocery clerks that Trader Joe’s tries to cultivate may be more than company ambassadors of goodwill. They may also be antidotes to employee theft. Shoplifting, employee theft and other losses, what is called “shrinkage” in retailspeak, are a constant problem for shopkeepers. But it’s a particularly vexing issue in the low-margin grocery industry. Analysts, consultants and some corporations say that spending extra money on hiring the right employees and then treating and rewarding them well pays off because loyal and satisfied employees tend to rip off the company less and stick around longer.

    The National Supermarket Research Group reports that theft and loss is 2.32 percent of supermarket sales, and 57 percent of that is estimated to come from employee theft. What’s more, a 2000 study on supermarket retention rates conducted for the Retailing Research Council found that job turnover costs the average supermarket nearly $190,000 a year in expenses related to lost business and the hiring and training of new workers.

    At Trader Joe’s, getting shrinkage down to one percentage point below the average rate would be worth $30 million a year, based on the company’s annual revenue of $3 billion. Improving retention 50 percent over average rates would be worth $19 million a year spread over Trader Joe’s approximately 200 stores.

    While Trader Joe’s won’t talk about its shrinkage or retention rates, another company that prides itself on similar workplace practices, The Container Store, reports that it consistently beats average shrinkage and retention rates. The Container Store cultivates loyal employees with higher-than-average salaries and benefits, extensive training and feedback, and room for advancement.

    “We spend more on our employees, but we get the reward and the return,” says Joan Manson, the Dallas-based company’s director of loss prevention. Manson says that average shrinkage in the retail sector runs about 1.7 percent of sales. The Container Store’s rate: 0.7 percent.

    Adam Mertz, grocery market manager for Unicru Inc. in Beaverton, Oregon, agrees that rewarding employees to build loyalty can help reduce shrinkage and increase retention, but says that poor hiring practices can undermine the system. Unicru promotes a hiring system that weeds out slackers and potential thieves with a combination of background checks and subtle interview techniques that can shed light on a prospective employee’s character. Unicru recently applied those techniques for a division of a national grocery chain. The result: a 21 percent drop in shrinkage rates over the first seven months. “Get the right people, first and foremost,” Mertz says.

    While hiring the right workers is key, keeping them happy is where retailers receive long-term benefits, says Richard Hollinger, a professor of criminology and sociology at the University of Florida. Hollinger conducts research on retail theft. “Retailers work in a world where pre-employment screening is the most important thing to do,” he says. “What you have is a pool of people who are generally pretty honest when they start, but slowly they become disenchanted, disenfranchised, and they begin to seek equity in the only way they know: work less or steal.”

    How companies deal with employees after they’re hired is much debated in the retail industry. John Case of John Case & Associates, a security consultant in Del Mar, California, and author of the book Employee Theft: The Profit Killer, says that spending extra money in the hope of building employee loyalty isn’t a very effective theft deterrent. Loyal employees also steal, and sometimes get away with more precisely because they’re trusted, he says.

    To stop employee theft, a company should carefully and constantly monitor its workers and mete out swift punishment to those caught pilfering. “The whole thing is accountability, and the perception of getting caught and the knowledge of what would happen,” Case says.

    Too many companies subscribe to the big-stick method of keeping employees in line rather than the carrot method of rewarding performance and cultivating loyalty, Hollinger says. “If you talk to retailers, they will say that you can’t pay people decent wages, you can’t give them health insurance, certainly you can’t give them child care and still make a profit. Most retailers treat employees like migrant workers.”

    Hollinger says companies that spend more on employees tend to be highly profitable and have fewer labor problems. If you want to see the relationship between good employment practices and profits, just glance at Fortune magazine’s annual list of Best Companies to Work For, he says. The companies on the list, including the perennially high-ranking Container Store, tend to offer high wages, good benefits and extensive development programs, and they also generally have low turnover rates and strong profits.

    “It is not an accident,” Hollinger says.

Workforce Management, September 2004, p. 53 — Subscribe Now!

As companies begin demanding more customized executive education programs, universities across the country are responding with new and expanded offerings within their business schools. Duke University is upping the ante.

    Five years ago, the university spun off its non-degree, custom executive education program to a wholly owned for-profit company, Duke Corporate Education Inc., creating a unique approach to executive education. Headquartered in a converted tobacco barn behind a baseball field in Durham, North Carolina, a dozen blocks from campus, Duke CE, as it is known, has been mounting custom executive education programs for corporations since its inception in July 2000. Duke CE draws on its own staff of about 80, along with professors from Duke and other universities and private consultants. It assembled a client list ranging from Bank of America to British Airways.

    Duke University owns 85 percent of the company’s stock; the rest is owned by Duke CE staff members. When the new entity spun off, the university was doing about $8 million worth of business each year in custom executive education. Its latest annual sales figure: $42 million. The long-term goal is to increase annual sales to $250 million.

    Few of its programs actually take place in Durham, and Duke professors account for only about 40 percent of those who teach its courses. Its far-flung contracting network includes more than 1,200 professors and professionals around the globe who can mount training seminars or strategic gatherings at corporate meeting rooms or rented conference centers from Asia to North America. Since its launch, Duke CE has delivered programs in 37 countries.

    “Being part of a university is a great thing,” says David Miller, Duke CE vice president of business development. “But there are also some liabilities. One of the liabilities is that university faculty members don’t have the incentive to do high-quality custom executive education. If you go to a faculty member and say, ‘Come work with us for a couple of days to really understand this issue and this company,’ more often than not the answer is, ‘No, I do not want to do that. My job is to do research and teaching. If I don’t, I don’t get tenure. Why would I invest five or six days for something that doesn’t enhance my career?’ “

    Miller says Duke CE tries to track down professors who are interested in and capable of handling custom education and contract with them for specific programs.

    In developing programs, Duke CE strives for results that directly address specific company needs. For example, a training program was designed for top auditors at a major accounting firm that was trying to shake up its systems in response to the accounting scandals at Enron and WorldCom.

    Duke CE’s solution was a series of simulations designed to broaden the way the company’s auditors think about issues and probe for answers. In one simulation, Duke CE hired actors and set up a mock hospital room complete with patients. CPAs donned white coats and tried to diagnose patients, with a real doctor serving as a consultant to help.

    The idea wasn’t to teach accountants how to be doctors but to shake up their approach by encouraging them to ask more questions, even stupid questions, in their quest for answers.

    “If you take someone out of their area of expertise and into an area where they know nothing, they are freed up to ask naïve questions,” Miller says. “For someone to ask a silly question in an auditing case would demonstrate that they don’t know what they are talking about.

    “But for an auditor to ask a silly question as a doctor is OK because they are not doctors. Who cares if they look silly? We got huge results in terms of how they approach their practices.”

    If Duke CE continues to grow, it might consider changing its ownership structure, including a public stock offering, Miller says. For the moment, its goal is simply to sell more programs.

    “Are we the wave of the future? I don’t know,” Miller says. “I do know that we have been successful.”

Workforce Management, March 2005, p. 61 — Subscribe Now!

A decade ago, the executive education program at the University of Pennsylvania’s Wharton School consisted primarily of open-enrollment classes that brought together groups of executives from diverse companies and fields for class lectures and projects. The executive education field has changed a good deal since then, and Wharton has been especially keen on adapting. With companies demanding programs designed just for their own employees, the university quickly shifted emphasis. Today, nearly 60 percent of the 8,000 to 10,000 executives who attend each year take part in custom programs.

    As interest in custom programs escalates, so does the competition among institutions. “The bar for custom programs is rising,” says John Spector, vice dean for executive education at Wharton. “I think that in the past, a custom program was just an open-enrollment program where all the participants came from one company. Now it is much more about a deep relationship between a corporation and an institution. There are dimensions that are more subtle and more complex than they were before.”

    At Wharton, this means that professors who sign on for a custom program that will include a one-week course session often wind up with a commitment that lasts more than a year. It begins by working with the company to craft the custom program, which can mean spending about three months with a company’s executive team studying company operations and strategy. That helps shape the course content.

    The company then picks groups of promising managers, typically employees who are from 20 to 40 years old, and sends them to Wharton for a week or two of classes. That time is spent not just listening to lectures but also working on specific company issues or problems, with professors trying to help craft solutions.

“As customization becomes more and more necessary and expected, we have embraced the philosophy that the weeklong program is just the beginning of the process. We will continue to be in front of the participants and get them to continue to work on these issues until it is complete.”

    When the class is over, the professor typically must follow up, staying in touch with participants to answer questions and sometimes offering coaching. “As customization becomes more and more necessary and expected, we have embraced the philosophy that the weeklong program is just the beginning of the process,” says Katie Wiesel, director of custom programs at Wharton. “We will insert the faculty and continue to be in front of the participants and get them to continue to work on these issues until it is complete. That can take a year or 18 months.”

    The price depends on what the company wants to accomplish. Each custom program is individually negotiated.

    Wiesel says that designing a typical one-week custom program can cost from $25,000 to $100,000. Tuition tends to run about $30,000 per day for a group of 20 to 50 participants; for a five-day course, the tab can be $150,000. The more people a company sends, the lower the cost per person.

    The grand total for a week: $175,000 to $250,000, plus room and board per person of about $1,750.

    By comparison, Wharton’s one-week, open-enrollment executive training courses in topics like leadership and strategy tend to run about $8,000 per person. Sending 20 people through open-enrollment courses would cost about $160,000.

    The trend is toward ever more customized education.

    “Custom is all the rage right now,” Wiesel says. “I really do think it is only going to get more so. I think the desire for customization will get even more complex.”

Workforce Management, March 2005, p. 60 — Subscribe Now!