For this month’s Econ Extra Credit series, we went back to a time when Tower Records was still a dominating force in the entertainment industry, courtesy of the 2015 documentary “All Things Must Pass: The Rise and Fall of Tower Records.” (You can catch up on our previous coverage of the film, as well as details on where to stream it, here.)

Beyond the nostalgia for the music itself as well as the bygone heyday of record stores, one unusual detail about Tower Records stood out to us: the number of employees who were able to climb to the top of the company’s corporate ladder.

“Virtually everybody in the company started off as a clerk. They become buyers, they become, you know, supervisor-types in the store, they become assistant managers and then they become managers,” said Tower Records’ late founder, Russ Solomon, in the documentary. (Solomon died in 2018.) “And the entire development of Tower Records, through the entire period of time it existed, was just that kind of a thing.”

But how common is that process, really?

“Marketplace Morning Report” host David Brancaccio spoke with Matthew Bidwell, a professor of management at the University of Pennsylvania’s Wharton School, to learn more. The following is an edited transcript of their conversation:

David Brancaccio: It’s so interesting. You watch this film and people who are like stock clerks rise to positions of power, some of them, some are even responsible for figuring out that they should open Tower Records chain in Japan. When you hear a case like that, would you say that’s common at companies?

Matthew Bidwell: It’s not completely unheard of, obviously, it’s not the most common career path. I think in a lot of organizations there’s still quite a gap between the top floor and the highest levels of management. People coming in often kind of as somewhat professional managers halfway through the organization, there definitely are cases I think in a number of organizations where you see this, but it’s not the norm.

Brancaccio: We do see in some of the larger, for instance fast food chains, offers that if you come in at entry level they’ll get you into a program that could make you store manager, you do see that.

Bidwell: Yes, these sorts of programs, actually it turns out, make quite a lot of sense for organizations on two levels. It’s one thing that potentially makes them attractive places to work. And at the moment, if you’re working in fast food, the big headache you have is making sure that every morning there are enough people showing up in your stores to be able to open up. And if one of the things that you’re holding out is, you know, ‘Stay here long enough, do a good job and you can rise up into jobs with more responsibility, more status and more pay,’ that’s one useful thing to both recruit people and get them to stick around. The other thing is that also, if you have people who know the company, have spent time in the stores, they’re going to make better managers as well. And so it makes a lot sense for these organizations. And you see some organizations, Chipotle make a big deal out of this, Trader Joe’s makes a big deal out of this. And so you see some companies that really do push these kinds of career paths off the shop floor. And I think they’re reasonably smart. I mean, I think they’re a useful thing for these organizations to be doing.

Promoting managers with nuts-and-bolts knowledge

Brancaccio: And it’s certainly, if you do rise up into the so called C-suite, the very top of the company, and you did start at the bottom, it certainly gives you cred. And you know, gives you a certain status at the point that you get up toward the top of the company saying, “Yeah, I know what it’s like.”

Bidwell: It does, it does. And I mean, I think it is partly yes, you can talk to the frontline employees feeling like you have more in common with them and knowing more about their lives. And frankly, you’re probably in many cases going to make somewhat better decisions. I think a big problem that we often have is in organizations, you have managers making decisions that are going to be implemented by frontline employees without having a clear enough idea about what those frontline employees actually do day by day and what their lives are like. And so actually, having a feeling for what it’s like to be on the frontline, I think probably actually does make you a better manager as well.

In a tight labor market, more room for employees to rise

Brancaccio: Now in this tight labor market, that until perhaps recently, we’ve been seeing, there’s been a new thinking really about taking people you already have and investing in them, instead of looking elsewhere for people who may have more formal qualifications.

Bidwell: Definitely. The kind of the tightness of the labor market plays a big role here. When the labor market’s fairly depressed, there are a lot of people are unemployed, a lot of companies might feel whatever jobs we need to fill, it’s going to be very easy to go out and hire somebody. And so at that point, they look at internal development, and they say, “It’s a lot of work, it’s a lot of planning, it’s a lot of effort, do we really need to be doing this?” In a tight labor market, you discover you might want to hire for a job, that position may be open for a long time, causing you a lot of headaches. And so at that point, organizations do focus much more on, “Okay, can we build a pipeline inside to relieve some of these headaches for us?” I mean I think most of the evidence is frankly, even in a looser labor market, this is probably a good idea. Having people who really know the organization well, really increases their effectiveness and performance, plus, you actually end up not having to pay them quite as much as you would if you’re hiring on the external labor market. So I mean, I think in general, these kinds of career ladders inside organizations seem to be a good strategy. But people certainly focus much more on these issues in a tight labor market.

Brancaccio: But there is a role, I think, for formal education here. And even if someone starts entry level, at some point, if they’re going to end up as CEO, they may need some formal business training. And I know you work in a place that sells MBAs, right? But it’s still possible, you can start toward the bottom and then maybe there would be some provision within the organization to send people out to get the formal instruction, for instance, at a business school, and then they could promote from there.

Bidwell: Yeah, what is it that hedge fund managers say about “talking ones book,” or something? Yes, I’m definitely talking my book here yes, formal education, hugely important. Everyone should go to do an MBA. I think there are a lot of opportunities for people. I mean, a lot of business schools offer various kinds of part time programs, part time MBAs, those sorts of things, exactly catering to these sorts of populations, people who are doing well in their careers, don’t want to take two years out but still think that this is important. And you also see, I mean, even when it comes to undergraduate education, some of these companies, so again, Chipotle – which kind of makes a big deal about, “we hire from within” – will also sponsor its employees to go through undergraduate in certain areas. And so yes, I think there is definitely the opportunity to provide that education to people at the same time that they are continuing to climb the corporate ladder.

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