Playing To Win
The Future of the Middle Class Depends on Frontline Service Jobs
The Required Fundamental Strategy Rethink
I am very pleased to be posting the third co-authored piece in Year V of the Playing to Win/Practitioner Insights (PTW/PI) series with my friend and colleague, MIT professor Zeynep Ton.
In 2014, Zeynep wrote The Good Jobs Strategy, which Roger thought was the best business book he had read during the previous decade. That joint enthusiasm spurred us to co-found a non-profit institute, Good Jobs Institute, the goal of which is to help American businesses convert ten million crummy jobs into good jobs. This Labor Day-themed post is called The Future of the Middle Class Depends on Frontline Service Jobs: The Required Fundamental Strategy Rethink. And as always, you can find all the previous PTW/PI here.
Jobs in America
Over 40 million Americans work in frontline service jobs, preparing food, caring for the elderly, delivering packages, and stocking shelves. That’s more than four times the number working in factories. Walmart alone employs more Americans than all U.S. auto factories combined. Even if the entire manufacturing sector doubled overnight, services would still dominate.
Manufacturing remains vital for national security, innovation, and resilience. We totally support efforts to bring back manufacturing jobs that left for reasons not linked to the inherent underlying competitiveness of the US economy. But that effort cannot and will not on its own rebuild the middle class. The mammoth size of the service sector will require the transformation of service jobs into high productivity jobs that can pay well and offer dignity — an approach that also creates more competitive companies.
A Fundamental Strategy Rethink
But that requires a different set of strategy choices than are being made by most service companies today. Happily, some service companies are showing the way and are already outperforming competitors by investing in workers and setting them up for success. Retail giant Costco, with 219,000 US workers, pays an average hourly wage of more than $31 — higher than the average for U.S. auto workers in 2024. Benefits are generous and most managers and executives are promoted from within. QuikTrip, a Tulsa-based convenience store chain with over $20 billion in revenues, pays store managers well over $100,000 and offers a retirement plan designed to allow long-term employees to retire at age 55 with their working income intact. Its frontline workforce includes more than a thousand millionaires.
When Jim Sinegal, co-founder of Costco, visits Zeynep’s operations class at MIT Sloan School of Management, he reminds the MBA students: “This isn’t altruism. It’s good business.” Investing in workers isn’t just ethical, it’s part of a strategy to keep costs low and customers satisfied.
These companies can afford to pay more — without raising prices or reducing profit margins — because they design the jobs for high productivity. Costco offers fewer products and relentlessly eliminates tedious tasks, enabling employees to work faster, know products better, and make fewer mistakes. Employees are cross-trained to respond flexibly to customer needs and empowered to make decisions, such as experimenting with merchandise displays to drive sales. Crucially, employees have enough time to do their jobs well. On a busy weekend, you will notice long lines moving quickly because every register is staffed and employees actively manage the flow.
Work design makes employees more productive, which enables Costco to pay higher wages and achieve strong retention. High tenure, in turn, makes these work design choices more effective, boosting performance. The combination of investing in people with the designing of highly productive work, what Zeynep calls the Good Jobs Strategy, creates a reinforcing system that delivers customer value and profitable growth. Costco’s membership renewal rate exceeds 90 percent. Since going public in 1985, its stock price compounded at 18 percent annually, double the S&P’s 9.2 percent.
This system becomes even more powerful with technology. Companies with a strong workforce have historically leveraged technology more effectively. Digital tools and AI create more value when they help employees boost productivity and enhance service, which in turn enables greater investment in people.
So why don’t more companies follow this path? Too many executives still see frontline workers as a cost to be minimized rather than a driver of value. They assume high turnover is inevitable and benchmark wages to competitors who also churn staff. Because employees come and go, they end up designing systems with tight controls assuming their employees can’t do things right.
As with many strategy choices, the system they produce is self-sealing. Treating frontline employees this way produces poor morale, high turnover, and bad customer service — reinforcing in the minds of executives that they don’t get value from the frontline and anything they can do to reduce its costs is meritorious.
Producing Real Change
They also assume system change is too risky or too difficult. But here is the good news: it can be done. For eight years, Good Jobs Institute has worked with dozens of companies whose leaders wanted to adopt this strategy. We’ve seen it succeed from giant retailers like Sam’s Club to individual franchise units of Moe’s Original BBQ.
Leaders who raised wages, improved schedules and redesigned work ended up with higher productivity, lower turnover, and better customer experience that fueled profitable growth. Within two years of its transformation, Sam’s Club reduced post 90-day hourly turnover by 25 percent, improved labor productivity by 16 percent, and increased sales by 25 percent, without opening more stores.
Transforming service jobs into high-productivity, high-dignity jobs requires changing both business practices and perceptions. Service jobs are often mislabeled “unskilled” and dismissed as a dead-end. But as with strategy always, that is a choice, not destiny. There is always a better way! The real problem isn’t workers, it is workplaces designed in a way that (inadvertently or purposefully — it really doesn’t matter) strips skill, judgment and initiative out of the work.
Rebuilding the Middle Class
The middle class won’t be rebuilt on nostalgia for factories or wishful thinking that every care worker will “upskill” into the tech sector. In fact, the future of work includes more service work. Between 2023 and 2033, the Bureau of Labor Statistics expects home care workers, cooks, and fast-food workers to rank among the top five occupations with the most job growth. In most frontline services, even when some tasks can be automated, humans are often preferable: they can respond to varying customer requests, develop relationships, and shift across tasks as needs change.
Sector-wide change has happened before. In the early 20th century, U.S. automakers paid poorly, treated workers as a pair of hands, and operated with high employee turnover. Over time, pressure from unions pushed them to raise pay and improve benefits. Meanwhile, the success and dominance of Toyota proved that treating people like interchangeable parts wasn’t the best way to make cars. It figured out that to continuously improve cost and quality, it needed to have a stable workforce and that came only with deep respect for people.
The Strategy Choice
As has been discussed before in this series, companies always face a fundamental strategy choice when it comes to their people. On one hand, service companies can view their frontline workers as a cost burden and have as their imperatives to grind down wages, offshore to lower labor cost jurisdictions, replace with automation (now including AI) wherever possible, invest as little as possible in costs beyond wages (e.g. on training, benefits, amenities, enabling technology, or slack) — i.e. to ameliorate the frontline burden.
On the other hand, they can view their frontline workers as an engine of customer value generation and productivity growth, meaning their imperative is to augment the value of their employees. That means retaining employees to enable the company to reap the benefits of workers getting ever better at their jobs (which in turn means paying them well, providing stable schedules and career paths), leveraging employees’ time and knowledge with smart work design, and enabling their work with the best possible technology — i.e. to maximize the value of their frontline engine.
As with many strategy choices, one is much more alluring than the other in terms of short-term ease. The frontline burden choice drops cost-savings to the bottom line instantly. And by the time that the top and bottom line start an inexorable drift downward, those executives who chose that path are probably in some other job and the connection between the choice and the current serious problems is blurry.
The frontline engine choice requires more faith and courage — though with every Good Jobs Institute success, less of both are necessary. But as with all strategy choices, the good ones produce a self-reinforcing upward performance spiral while the bad ones produce self-sealing descents.
Practitioner Insights
Strategy is a problem-solving tool. Its purpose is to make choices that resolve the biggest and most painful problems. We would argue that the biggest economic problem facing America today is that the service economy is a giant employer and to a great extent, wages and working conditions in that sector do not allow for the middle-class life to which the biggest segment of the American electorate has long aspired.
That problematic outcome is not a deterministic feature of service jobs. Rather, it is the consequence of strategy choices that have been made by employers in that sector. And as always, a variety of strategy choices can be made in any context — and some choices are better than others.
We believe, and our work has shown, that all executives overseeing service operations have the freedom to reject the most standard choice — which is to focus on the frontline burden — and instead choose to develop the most powerful frontline engine their context makes possible.
While business leaders hold the primary responsibility for these choices, public policy can also help by making the frontline engine approach more attractive. Policymakers should both nudge businesses toward this high-productivity model and eliminate regulations that create unnecessary inefficiencies — such as overly restrictive licensing rules that prevent capable workers from performing tasks they can handle safely.
To us, this is a legacy issue for executives. Our dear friend and colleague Clay Christensen once said that business is among the most noble professions, but only if it is practiced well. Leaders who adopt the Good Jobs Strategy change lives. When Zeynep’s students ask Jim Sinegal what he is most proud of, he doesn’t hesitate. It’s the over 300,000 good jobs Costco has created worldwide. On store visits with him, Zeynep has seen employees light up, rush to shake his hand and take photos with him. Twice she has seen employees cry when they talk about how Costco changed their lives.
At Sam’s Club, when employees learned they were receiving a $5–7/hour raise, some cried and called their spouses to tell them they could quit their second job. The owner of a Moe’s Original BBQ franchise told us that one of his employees gleefully informed him that it was the first year she could buy new back-to-school supplies rather than rely on Goodwill.
If service executives individually start choosing to augment their frontline engine instead of the minimizing their frontline burden, the collective impact on the well-being and prosperity of the middle class will be breathtaking — because in the end, strategy is choice, not destiny.
And, on this Labor Day 2025, what better legacy could there be?
