Increasing human and social capital by applying job embeddedness theory

Abstract

S easoned leaders know there is no single silver bullet, golden handcuff, or platinum program that will keep their best and brightest employees productively engaged for the long-term. Yet, it is imperative that they find a way to do so. Recent studies indicate that the attraction and retention of valued employees are among the most critical issues faced by organizations. Replacement costs for employees can be higher than the salary of the person departing. In addition, the social relationships formed by employees inside and outside the organization are believed to create social capital, a resource that is being increasingly recognized as crucial for success in today’s organizations. When a valued person leaves a firm, the social network is disrupted and presumably some of the social capital leaves as well. Mounting empirical evidence also points to the importance of developing human capital as a strategic means for increasing firm value. While unpacking this relationship can be complex when attempting to cut across multiple industries, understanding the logic in the context of a single firm is not. Please consider the following example. Wegmans Food Markets Inc., a Rochester, New Yorkbased grocer, was 2005’s Fortune Best Company to Work For. As a private firm, Wegmans does not provide extensive financial data for analysis. Suffice it to say that the firm’s operating margins are about 7.5 percent – double what the big four grocers earn – and its sales per square foot are 50 percent higher than the industry average. While its stores are larger than average and they stock more products than most other grocers, top consultants point to Wegmans employees as the key to the company’s success. Darrell Rigby, head of consultancy at Bain & Co.’s global retail practice, notes that the reason Wegmans is a shopping experience like no other is that it is an employer like no other. You cannot separate its strategy as a retailer from its strategy as an employer. While Wegmans’ salaries and benefits are at the high end of the market, employees say this isn’t the whole story. The firm makes strategic investments in its people. Before opening its Dulles, Virginia store, Wegmans spent more than $5 million to train new employees there. Moreover, initial training is supplemented in many ways, including sending employees on company-sponsored trips; staffers merchandising wine and cheese might travel to France and Italy to see the vineyards and observe the cheese makers. While much of the investment is directly related to Wegmans core business – people who know how to pair wine, crackers and cheese tend to sell more product than those who don’t – Wegmans has also contributed $54 million for college scholarships to more than 17,500 full-time and part-time Organizational Dynamics, Vol. 35, No. 4, pp. 316–331, 2006 ISSN 0090-2616/$ – see frontmatter 2006 Elsevier Inc. All rights reserved. doi:10.1016/j.orgdyn.2006.08.007 www.organizational-dynamics.com