The role of standards in fragmented organizations: Insights from the fissured workplace Institute of Medicine of the National Academies Committee on DHS Occupational Health Washington, DC: June 11, 2013 David Weil Boston University

Fissured formula Provider of management service Third party management co. Brand management co. Provider of cleaning service Franchisees L/S business Subcontractor Labor contractor Provider of landscaping service Multiple parties / multi-levels FISSURED RECIPE: Focus on core competencies Brand / Coordination / Cost Shed employment to lower level providers in competitive markets Develop standards & create structure to protect core RESULTS FOR LEAD FIRMS: Capture value from revenue side Lead firms face a schedule of prices for services rather than wages for labor Reduce costs but creates agency dilemmas 2

Fissured supply chains: Schematic of distribution center 3 Incoming dockOutgoing dock Conveyer system Intl. Shipments Individual stores Information Products (shipments) STANDARDS

Schematic of employment Incoming dockOutgoing dock Conveyer system Intl. Shipments Individual stores Premier Warehousing Ventures Schneider Logistics Impact Logistics Inc. RETAILER STANDARDS

Role of standards Clear and explicit guidelines / expectations regarding operation and performance; System of monitoring / auditing adherence to guidelines; Incentives (carrots and sticks) for meeting guidelines / goals. 5

Examples of standards in fissured workplaces: Fast food franchising agreement Under our franchise agreement, we grant our franchisees the right (and they accept the obligation) to operate a Dunkin' Donuts Store, selling doughnuts, coffee, bagels, muffins … and other sandwiches and beverages that we approve. We may periodically make changes to the systems, menu, standards, and facility, signage, equipment and fixture requirements. You may have to make additional investments in the franchised business periodically during the term of the franchise if those kinds of changes are made or if your stores equipment or facilities wear out or become obsolete... All Dunkin' Donuts Stores must be developed and operated to our specifications and standards. Uniformity of products sold in Dunkin' Donuts Stores is important, and you have no discretion in the products you sell. The franchise agreement is limited to a single, specific location and we have the right to operate or franchise or license others who may compete with you for the same customers. 6 Source: Dunkin Donuts Franchise Disclosure Documents, 2012

Examples of standards in fissured workplaces: Franchised hotels 7 Source: Analysis of Franchise Disclosure Documents, 3/15/12

Examples of standards in fissured workplaces: Auditing performance Cingluar (AT&T) agreement for cell tower maintenance : [Cingular] will audit 15% of all Sites awarded in a market at Vendors expense…If greater than 1% of the initial 15% of individual Sites audited per market have Major Defects, then Cingular may request an additional 5% of Sites be audited in that market at Vendors sole expense. Cingular may continue to add audits in a market in 5% increments until Vendors Major Defect rate is less than the 1% baseline provided herein Taco Bell franchise agreement: [Taco Bell] shall have the right at any time and from time to time without notice to have its representatives enter the Restaurant premises for the purpose of inspecting the condition thereof and the operation of the Restaurant for compliance with the standards, specifications, requirements and instructions contained in this Agreement and in the Manual, and for any other reasonable purpose connected with the operation of the Restaurant. 8 Source:. Agreements quoted in Weil 2013.

Examples of standards in fissured workplaces: Penalties for failing to complySaks Administrative Fees / Expense Offset Fees : Purchaser is entitled to be compensated as outlined in the Vendor Standards Manual, for non-compliance with these specifications…in the form of an invoice deduction(s) from any amounts owed the Vendor. Instead of a deduction, purchaser may demand direct payment of expense offset fees or other administrative fees specified in the Vendor Standards Manual. Any such direct payment demand by Purchaser shall be made within 30 days of the date of demand. Late payments shall accrue interest at the rate of one percent (1%) per month. Any amounts billed or deducted by Purchaser for failure to comply with the Vendor Standards Manual or the Terms and Conditions of this Order, shall be considered liquidated damages and not a penalty. 9 Source: Saks Fifth Avenue Vendor Manual, 2012.

Examples of standards in fissured workplaces: Penalties for failing to complyPizza Hut Inc. If any inspection indicates any deficiency, Franchisee will correct or repair the deficiency within 48 hours after Franchisee receives a written report of the deficiency from Pizza Hut Incorporated (PHI)... If the deficiency is one that imminently threatens the health or safety of Franchisees employees or the consuming public, PHI may (instead of terminating this Agreement…) require Franchisee to cease operating the effected System Restaurant until the deficiency is corrected. If Franchisee does not cure the deficiency within the permitted time, PHI may make, or hire someone else to make, the corrections or repairs. Franchisee will reimburse PHI, upon demand, for all of PHIs repair expenses. 10 Source: Pizza Hut Incorporated Franchise Agreement, State Amendments and State Addenda to Disclosure Document, 2009, Section 6.4

When standards fail: Fissured cell towers… Source: OSHA, ProPublica, May 2012 Number of cell tower fatalities

12