So our last big point is to talk about systems of work. We've been talking about individual practices, motivation early on, job design now in this section. How they fit together in ways that create synergies, that make them even more powerful. So one simple example of this it that we know that profit sharing and stock options for employees at a broad based level for the work force as a whole seemed to have very little effect on employee performance. If you combine profit sharing with employee participation, then you get a much bigger effect, and why is that? Well, profit sharing might give you a motivation or a sense of identification with a company that creates some sense of willingness to help the company, but unless you have involvement and participation so you can make some decisions. Autonomy as it were. You've got no way to exercise that motivation. You put these two together and then you start seeing some effects. We teach a couple of cases here at the Wharton school about how these practices bundled together can actually drive the competitiveness of the whole firm, we see this easiest in the for profit area, but you can see it almost anywhere. We teach a case for a company that we've named Holt Chemical, it's not the real name of the company, and this was a student project of our MBA students many years ago. What happens in Holt Chemical is, this is a company that was in the specialized chemical business, competing as bigger companies had lower costs. But what Holt was able to offer was customer service that was Really good, how do they do that? First of all they didn't hire a professional sales people, they hired chemical engineers, and when they hired those chemical engineers they put them to work first in the factory, their chemical plants so that they would get some understanding of what the chemicals felt like, looked like, worked like. And also, they knew who made the chemicals in the plant, and who were the experts in the plant on those chemicals. Only then did they go out in the field and start dealing with customers. They'd stay with customers, more or less for life, or at least their life in the company. They were paid a straight salary, no commission, they had no incentive to push different kinds of chemicals on clients so the clients started to trust them. And because they were chemical engineers they were already oriented toward solving problems with chemicals, which is different than chemists who are interested in chemistry per se. Pretty simple set of practices but it produced something that helps sustain the company and its competitive advantage, that is, its customers are willing to pay a premium to buy chemicals from Holt, in order to get their customer service which was really just sales people who were effectively consultants. They knew a lot about their chemicals, they knew a lot about their clients and they knew what would work where. The problem at Holt Chemical is they called in a consulting company that was giving them advice on how to improve profitability, and the advice turned on giving these sales people incentives to sell more chemicals that were more profitable. As soon as they did that the customers started to notice that you couldn't necessarily trust what the sales people were pushing on you. And the first thing that happened is some of the sales people themselves noticed this and quit, because they didn't like this new arrangement. They didn't see themselves as sales people primarily. The second thing that happened was, the customers started to bolt, because they didn't trust Holt's service so much anymore, and the products of competitors were cheaper. So, Holt's entire competitive strategy begins to unravel, because of a change in management practices. Actually, just one change which then broke up the synergy between their other practices, and made them as a company not so successful anymore. Another quick example, out of the world of retail is, the folks at Nordstrom. Who have for decades now had the most profitable department store. Sales per square foot, how did they do it? The sell more or less the same that stuff everybody else does sells. They sell their own brands, they sell fashion. And the way they do it is their competitive advantage, and that is, sales people who tailor the experience to individual customers, give them whatever they need. How do they do that? Partly hiring, they try to hire people who are enthusiastic. They don't bother training people because theres not much training you need. You don't need to know the polymer account in sweaters you just need to be able to tell people, that looks great on you and let me let you know when somethings on sale and I'll bring this to your house. The other reason they don't train them is they don't want you to have a standard way to deal with costumers. They want you to do whatever It takes to make that customer happy. And they have huge commissions in terms of a percentage of their pay. They watch through a lot of people. People who don't fit get pushed out pretty soon. But because they're not spending a lot of money hiring, or training people, when they lose them, it's not that big of a deal. But the ones they keep figure out how to please Nordstrom customers. They maintain their own customer base and they got a big financial incentive back to motivation to sell well. So in that case, it's not a series of complicated practices, and it's not often things that you might call best practice. No training, no careful selection. But it fits together in ways that work for that company given where their business is. And I think that leads us to a conclusion here from this part of the course. And the conclusion is if you do the management of people correctly, it's not just about being able to keep your costs down or able to implement and execute strategy or whatever the processes are the company wants. It is possible that you can actually create the competencies that drive the strategy of the business. And this is going to tie our section of the course into other sections on strategy you're going to hear about in a little bit.
