Recent legislation enacted by the State of Maryland forces employers with more than 10,000 employees to spend a minimum of 8% on health care. Known as the Wal-Mart law, because Wal-Mart is the only employer in the state directly affected by the law, it seeks to recoup dollars the state contends Wal-Mart is costing their Medicaid fund. Thirty other states are considering similar legislation.
The 8% figure was arrived at because that is the “average” being spent nationally by large corporations.
Throughout the years, Wal-Mart worked very hard at keeping prices low. As an executive with Kmart, I met Wal-Mart executives at many conferences and seminars. With every product they sold their desire was to find a way to increase efficiencies so that they could reduce the cost of every item they sold. Most of the efficiencies were in the distribution channel, however at the same time they were finding ways to keep overhead low. One such way was to keep employee costs down.
The mystique of Wal-Mart and how they grew to be the universe’s largest business, with an economy greater than all but 20 nations, is that Wal-Mart is consistently the lowest priced retailer. This means that from a percentage viewpoint Wal-Mart is spending less on many items including total employee cost, the cause to move merchandise, the cost to transport merchandise, expenditures on real estate, and much more. Once any of those elements changes significantly, Wal-Mart must seek another way to keep prices low or to raise prices.
The latter is what the Wal-Mart attackers are seeking. The two largest groups battling Wal-Mart are comprised of individuals from organizations that have much to gain if employees are unhappy or if Wal-Mart prices were higher. By raising Wal-Mart’s expense on health care Wal-Mart will be distracted by finding other ways to keep their prices low. The hope is they will be unable to do so, making Wal-Mart a less fierce competitor.
Obviously if Wal-Mart is large enough to be Maryland’s only large employer spending less than the average, once they begin to spend the average, the average will go up. To be consistent this would require new legislation to raise the threshold, thus creating a never ending cycle.
The sport of hating Wal-Mart
In some circles, hating Wal-Mart has become a sport. However this overlooks recent studies that have shown the American economy has a lot to be thankful for when it comes to the mega-retailer. The studies show that Wal-Mart has been instrumental in keeping consumer prices low across the board. Certainly Wal-Mart is the low-price leader. When Wal-Mart first enters a town the local mom-and-pop retailers think that they must compete with Wal-Mart on a price basis. This price distraction is the real culprit when it comes to local business failure following the Wal-Mart grand opening.
As with any business strategy if you can recognize your competitor’s strengths and weaknesses you can develop a plan to overcome those strengths and weaknesses. There are many things that Wal-Mart will not do. For example, the need for high volume prevents Wal-Mart from carrying specialty products. Local retailers with the insight to focus on the consumer need Wal-Mart cannot meet are the local retailers that thrive off of the increased traffic created by the low-price discounter.
Why below average is good for sales
There is nothing inherently wrong with seeking to raise “below average” to “average” performance. Sometimes a focus on one “average” may distract an employee or an organization from another “average”, or even an “above average”.
Last year I was coaching a financial planner. His organization noted that not all of their planners were doing their cold calling to find new clients. Their research showed that the average time spent on cold calling was an hour per day. They were also very pleased to learn the number of prospects and hour of cold calling would unveil. Dollar signs pierced their cranium as they thought about the prospects to their agency. Obviously it had to be mandated that every agent spend an hour a day, preferably between 9 and 10 each morning.
In the case of my client this cold call period was a time that he normally was intensely involved in networking. The demand of being in the office to make the cold calls required that he spend his primetime at networking to make cold calls. His talents and personality lent him towards networking. In fact he was excellent at networking. However he struggled with cold calling. Actually “struggled” is too mild a word. He hated cold calling. He came off as cold, scripted, and uncaring. He rarely was able to close a deal when the initial contact was via cold calling.
On the other hand, while networking he was in his comfort zone. He was able to get strong leads and even encourage the lead-givers to introduce them to the prospect. Once he had to take his time away from networking to make cold calls he fell from being one of the top five salespeople in his office to a bottom dweller. Sure his cold calling was now at the average of one hour a day. However it was his networking that put black ink on the bottom line.
The sad part is that the agency thought they had a win-win. The cold call average went up. Because they were focused on the cold calling, they did not realize that his sales had gone down. What they thought was a success was a failure in my client’s eyes. Soon he became discouraged and moved to a different company.
When we focus on the average, we tend to focus on the fact that we are improving below average statistics. We tend to overlook that we are also reducing the performance of our best performers. So it is with every aspect of an organization. We must look at the entire picture. If we do not look at the total personality of our organization, our competitors, and most importantly our people, we will constantly be seeking to drive to the average. If successful we will be just that, average. The bad news is that inter-organizational and interpersonal competition does not allow those that are average to be successful. To succeed one must be above average, particularly in the areas that our customers and employers are most interested.
In the case of Wal-Mart and healthcare, if Wal-Mart spends more on health care than the average, the average will be driven up. Then using the “average” as the barometer, those below average will come up to average creating a never ending spiral. Wal-Mart will not give up their price leadership, making this game of playing averages with healthcare expenditures will result in higher prices for everyone.
Rick Weaver is an accomplished business executive with a wealth of experience in retail, market analysis, supply chain enhancement, project management, team building, and process improvement. Building on a strong retail background, Rick moved to full supply-chain involvement, working with hundreds of companies to improve sales, processes, and bottom-line results.
As Rick’s interaction in varied industries expanded, he became troubled as he increasingly noticed that people and companies had untapped or unfocused talent.
Coupled with Ricks passion for training and development, popular style of interactive workshops and seminars, and strong desire for continuous improvement, he founded Max Impact Corporation to be singularly focused on helping individuals and organizations achieve high performance.