Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Total Cost Perspective

I read an interesting article today titled "We May Need Labor Unions After All" by Henry Blodget at Business Insider. The article was focused on the record business profits in America and how this contrasts with a wages as a percentage of the economy. It goes on to discuss some causes of this inequality and how unions in the past have served as a partial solution.

I think most of us also recognize that some of this has to do with America's shrinking manufacturing base and the move to a more service focused economy. Today we have more people working the sales floors of the furniture stores, electronics kiosks and car dealerships and fewer people building these products to sell to the world (quite the opposite; the world builds them to sell to us!). Instead many other countries are building our products, which used to offer the better paying and more stable jobs in the United States, leaving a growing percentage of our citizens to fill the retail (warehousing, inventory, sales, cashier, etc) jobs necessary to help get these products into our homes.

However, another major aspect of this, as Mr. Blodget points out, is the increased focus on shareholder value to the extreme. However, I believe that in many cases this extreme focus is necessary to maintain or improve a company's position in a competitive industry (think Walmart[WMT], Kroger[KR], or any other low margin business) where a couple percentage points can make the difference in gaining or losing market share year over year. From another angle, say oil field services (my area of expertise as a procurement professional), attempting to get the most shareholder value by reducing wages as low as possible can create a major long-term problem for the organization due to increased attrition rates, as the O&G operators look for consistency of crews and higher experience levels. As with most things, this is not as simple as it looks from the outset due to the nuances of different industries and (not to sound cold) how easily replaceable individual members of the workforce are (i.e. switching costs).

Two other thoughts that come to mind on this: 1) keep in mind the compounding impact that reduced profits might have had on Wal-Mart if they had elected to pay their employees more than the market required. Especially in the early years, when Wal-Mart was putting every dollar toward expansion, each percentage point dictated how many additional stores could be opened. Each extra store, established due to the extra profits, then generated profits itself, compounding in this model over many "generations" of this occurring. 2) the other question here is how important each employees role is in delivering the final product/service to the customer and how high the switching costs are. These two aspects have a dramatic impact on the compensation an employee can command in a given job. Keeping Total Cost of Ownership (NYSE:TCO) in mind is important to ensure you are considering the impact increased salary/benefits for employees could have a longer term impact on sales, margins, operating efficiencies, etc. Figuring out the right break-even can be a strong competitive advantage for an organization, ensuring the best final product and a more satisfied workforce and customer base.

We could all use a longer-term, TCO driven focus these days. Often the hardest part is influencing those around us that it's the best way, given the short-term deliverables and deadlines we face in today's fast-paced society. For those of us who aren't at the top of the food chain, anyways.. :)

Disclosure: I am long WMT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.