Nordstrom

Group 1

JM AgacerFrytz Agosila

Brenda BalumeKarlo Prado

SYNTHESIS

Nordstrom is one of the most successful department stores in the United States, boasting 1995 sales of $3.90 billion dollars and a net income of $203 million. One of its most significant characteristics is what they call “the Nordstrom Way,” which is basically an intense focus towards customer service. Nordstrom employees regularly go to great lengths to please their customers, often requiring much time and sacrifice of the part of the employee. Their salespeople (called “Nordies”) are motivated by hourly salaries that are much higher than the industry standard. Another important motivator is sales per hour (SPH); low SPH can lead to dismissal while high SPH is one of the most important criteria used to determine promotions.

The importance given to SPH however, puts a lot of pressure on each of the company’s employees. This has reached the point wherein some salespeople do not clock in their overtime work, in order to maintain acceptable SPH levels. Other employees feel that the time they spend catering to the employees needs comes at the expense of their own work conditions. A few of the stories told by ex-Nordstrom employees were especially disturbing, and described work conditions that border on employee exploitation. Still, many Nordstrom employees love the company and understand the demands involved.

POINT OF VIEW

We will analyze the case using the point-of-view of company president Jack McMillan. Jack is the company president, and he has enough authority to address the company-wide concerns regarding employee work conditions.

Also, he has shown the willingness to admit that there are problems with the current system and has acknowledged his responsibility to deal with them.

STATEMENT OF THE PROBLEM

What should Jack McMillan do in order to address Nordstrom’s problems regarding employee welfare and work conditions?

OBJECTIVES

To identify the problems with employee welfare and work conditions

Jack must take an objective look at the present working conditions of his employees, in order to identify any and all problems that need to be addressed.

To determine alternative action plans that could help address these problems

After getting an idea of what problems face the company, he must construct ideas on how to solve these problems. All feasible options should be considered in doing so.

To choose the most appropriate course of action from the alternatives formulated, and to come up with a concrete implementation plan to support it

After determining all possible solutions, the next step would be to weigh the disadvantages and advantages of each option against each other. This would allow him to systematically arrive at the most ideal course of action. Finally, a specific implementation plan should also be constructed to ensure that his planned results are achieved.

AREAS OF CONSIDERATION

As described in the stories of its ex-employees, there are several significant problems with the current Nordstrom system. These include the following:

Unpaid Overtime Work

One of the most apparent complaints against Nordstrom is its practice of encouraging its employees not to clock in their overtime work. This is not a fair practice for several reasons. First, it misleads job applicants with regards to what kind of compensation they can receive at Nordstrom. While it is true that the hourly rates at the store far surpass others in the industry, the compensation may not be superior to other companies when considering the total number of unpaid hours an employee is expected to render. This could be one of the main reasons explaining why company’s turnover rate is significantly higher than the industry average, even though it offers high hourly rates that always attract many job applicants.

Also, since the overtime work comes free of charge, middle management would likely be less concerned about controlling the overtime hours of their employees. The fact that some employees work 22 straight days for 12-15 hours is of less concern to these employees’ superiors since their departments are not charged for the extra work, while they reap the rewards from the added productivity.

Finally, it simply isn’t fair to the employees who have to sacrifice so much time and effort literally for nothing. If employees have to dedicate so much of their lives to their jobs, then in the interest of fairness they should adequately be rewarded for it. Moreover, the motivation of the people involved would also suffer if they feel that they are not receiving rewards that are commensurate to the effort they put in. SPH as a Performance Indicator

While using sales per hour as a key performance indicator has its advantages, it also poses several problems for Nordstrom employees. First, is that is reinforces the practice of not paying employees for overtime. Since a lot of the overtime work is non-sales in nature, it has a negative effect on SPH. This creates a disturbing scenario where the act of not filing overtime work directly helps Nordstrom employees keep their jobs.

The application of SPH at Nordstrom also creates constant pressure and intense internal competition, to the point where it has become destructive. A perfect example of this is the account of Cindy Nelson, who was the top seller for two years in one of Nordstrom’s stores until several other salespeople claimed that she was stealing sales. Whether she was actually stealing sales or that the other salespeople intentionally sabotaged her was not proven, but it does show what lengths Nordstrom employees are driven to because of competition. And as long as SPH charts are displayed openly in public, and so much focus is put on it as criteria for promotion, this competition will continue to be very intense.

This also contributes to what some feel is a very toxic work environment that Nordstrom salespeople are subject to. This is understandable, since they are put under the pressure of having constantly having to maintain SPH or risk losing your job, as well as the pressure of constantly having to stay on top of the SPH chart to earn a promotion.

Lack of Job Security

In Abraham Maslow’s hierarchy of needs (illustrated above using a diagram lifted from Wikipedia.org), it is asserted that the human need of job security (a safety need) transcends his or her need of a slightly higher income level (essentially a physiological need). This could be another important reason why turnover at Nordstrom is high; employees might find other work destinations that are more stable to be more desirable than Nordstrom, maybe even if it means earning slightly less. If even employees who are

very good sellers, like Patty Bemis, have to come to work with strep throat or while recovering from significant injuries because they are scared to lose their jobs, there must be very little Nordstrom can offer in terms of job security.

Company Culture

The hypercompetitive nature of the job also is in large part attributed to the company’s culture. Nordstrom uses a wide variety of internal pressures, such as contests, titles (e.g. Pacesetter, All-Star), and the aforementioned SPH chart which constantly pushes its employees to sell more, put extra effort into satisfying customers and even purchase Nordstrom clothing. On top of that, managers constantly grill their employees regarding their sales figures, arguably to the point of harassment. The result is that some employees, as shown in the Wall Street Journal Stories, “feel like an absolute nothing working for them.” Referring once again to Maslow’s work, the lack of esteem brought about by kind of treatment from management could also be a reason for the company’s high turnover.

Another notable characteristic of the company’s culture is that while there is high regard for its customers, there seems to be less focus on the welfare of the employees who provide the level of service quality that these customers enjoy. Managers are measured solely by their ability to achieve sales and customer satisfaction targets, and not at all by how their employees are treated.

Nonstandard Company Policies

The lack of company guidelines could also be a reason for the perpetuation of some certain practices at Nordstrom. While it is understandable why the decentralized management style suits the company, the addition of certain company-wide regulations would control undesirable labor practices while maintaining the advantages of the current system.

ALTERNATIVE COURSES OF ACTION

Option 1 - Continue implementing the current system without any changes

One of the choices available to Jack is simply to maintain status quo, and continue running the company using current practices. It has been argued that although some employees fold under all the pressures exerted by company, most employees are happy with it, as evidenced by voluntary initiative to end union representation. One also cannot argue with Nordstrom’s results, the company continues to do very well and its customer service and sales orientation are undoubtedly two of the most important reasons why. Change in the company’s system might compromise what could be the company’s most significant competitive advantages. The current system allows for a lot of productivity while foregoing a lot of expenses, which helps significantly Nordstrom’s financial performance.

Unfortunately, the effectiveness and efficiency of the current system comes at a significant price. Nordstrom’s current practices are adversely affecting one of its most important stakeholder groups, its employees. Any job which requires extremely taxing hours without overtime pay or job security is far from an ideal workplace. If nothing is done to address these problems, many employees will continue to fall under the intense pressure in the company, which would lead to more complaints against Nordstrom. High turnover rates would also persist if this is pursued.

Option 2 - Modify the current system such that it become fairer to its employees

Some modifications to the current system could be enforced that would make the system more employee-friendly. These include the following:

Granting overtime pay Non-inclusion of hours spent stocking, delivering and doing other non-selling

activities in the SPH computation Confidentiality of SPH information Acknowledgment of employee welfare as a core value Standardization of the above as non-negotiable company policies

Each of these changes has its own benefits, all of which are in line with the basic thrust of improving employee working conditions. Granting overtime pay provides fair remuneration for the many hours spent for the company. Not including non-selling activities in the SPH computation provides a more accurate basis for evaluating an employee’s selling ability, and allows them to freely log their overtime. Confidentiality of SPH information reduces intense internal competition and helps protect underperforming employees in an environment where selling performance and self-esteem are closely linked. Acknowledgement of employee welfare as a core value would influence the company to proactively look after the interests of sales force. This should also stop management from constantly threatening the jobs of even those employees who are performing well. Perceived discriminatory practices should also be addressed in doing so. And finally, standardization of these policies would greatly help its smooth implementation. All these would help employee welfare, improve Nordstrom’s image, and lessen turnover rates.

One of the most significant disadvantages of this system is its financial impact. Overtime pay in the company is significant, as evidenced by the $15 million in back pay that Jack had earlier set aside. The hours spent cascading the changes throughout all Nordstom branches in the United States also has a significant monetary effect. Implementation would also be somewhat difficult, since the changes made are significant and company-wide. Monitoring hours spent selling and not selling could be especially problematic.

Option 3 - Change the system completely; adopt a more traditional approach

The most radical approach towards solving the problem would be to eschew the Nordstrom way entirely, and use more traditional labor practices. Of the changes that have to be made, the following are the most significant:

SPH would no longer be used, minimum sales quotas will be enforced instead Titles such as “all-star” and “pacesetter,” and various contests will likewise be

eliminated Non-mandatory thank-you notes and personal books Overtime pay would be granted Lessened pressure from management as long as sales quotas are met

This alternative makes Nordstrom more like its competitors in terms of employee benefits and general treatment of staff. Since Nordstrom would be complying with industry expectations in this regard, this should eliminate all concerns regarding employee welfare. Less pressure from management and elimination of mandatory thank-you notes and personal books also lessens employee workload, which combined with the added benefits, should eliminate turnover due to burnout or pressure.

The most glaring disadvantage to this is that it could very well lead to lessened productivity, and reduce the company’s competitive advantages. A lot of the present employees find the current system very empowering, since it does link performance with self-esteem and celebrates their accomplishments and hard work. Existing employees who are happy with the current system may not welcome these changes even though it may entail some added income. The expected decrease in turnover may even be offset by employees who dislike the new approach. Also, as mentioned earlier, granting overtime pay will have significant financial implications on Nordstrom. Finally, this option is the most difficult to implement, since it requires changes in the very essence of the company, and will likely be met with many problems.

RECOMMENDATION

We have formulated a list of disadvantages and advantages that we will use to evaluate the decision at hand, and determined the relative importance of each criterion. We then gave numeric scores for each alternative based on the ability of each to meet the chosen criteria. These are summarized in the table below:

Scoring is done on a scale of 1-10, with 1 being the worst and 10 being the best

Criteria Weight Option 1 Score Option 2 Score Option 3 ScoreMotivation/productivity 25% 8 2 8 2 3 0.75Employee Welfare 25% 5 1.25 10 2.5 10 2.5Financial Impact 20% 10 2 5 1 5 1Turn-over 20% 5 1 8 1.6 7 1.4Ease of Implementation 10% 10 1 6 0.6 3 0.3

7.25 7.7 5.95WEI GHTED SCORE

Recommended Option:Modify the current system such that it becomes fairer to its employees

As shown here, the two categories we put primary importance on are motivation/productivity and employee welfare. Given that Nordstrom is in the retail industry, most of its success hinges on the sales and service that are provided by its employees, which is why we gave it more weight than the financial implications involved with granting overtime pay or cascading new policies. Employee welfare is also an important consideration; Nordstrom should not compromise the quality of life of its staff just to save money, particularly when much of their success is owed to the efforts of these individuals.

We also consider turn-over to be equally important to the financial considerations of the options involved, since as mentioned earlier, much of Nordstrom’s success is contingent upon the service quality of their personnel, and low turn-over would help maintain that level of service quality that has been one of Nordstrom’s defining advantages. Finally, we also consider ease of implementation, since it would help ensure that the intended goals are met.

We feel that Option 3 is significantly less advantageous than the other two, mainly because it eliminates one of Nordstrom’s most important differentiating qualities. Its negative effects on motivation and finances, as well as its difficulty to implement, make it less attractive than the other two options, as reflected in its low weighted score.

The choice then, is between Option 1 and Option 2. It is difficult to determine which one has a more positive effect on motivation and productivity. On one hand, the internal competition and constant pressure from management in Option 1 does force its employees to be more productive, and provides an effective, albeit negative, way of motivating Nordstrom staff. On the other hand, Option 2 has positive effects on perceived job security, since management is not there to constantly threaten salespeople’s jobs, and self-esteem, because of more respect from management. We therefore give both an equal score, especially since different motivational tactics would work for different people.

The major difference between the two choices is that while Option 1 offers easy implementation and less costs, Option 2 scores better in two more significant categories, employee welfare and turn-over, which is why we would recommend Jack to pursue this option.

IMPLEMENTATION PLAN

The first step Jack should make to implement the changes would be to discuss them with rest of the ownership group. They should be made to understand the value of looking after employee interests, and how the current set-up has its share of unfair practices.

After doing so, Jack, with the proper assistance from human resources, should proceed to revise the company’s current standard policies. They should schedule a formal cascade to the company’s regional mangers, in order to ensure that the new guidelines are

not misinterpreted. In line with the granting of overtime pay, it would also be wise to advise the regional managers to look into the possibility of hiring part-time or minimum wage workers to assist salespeople with their non-sales functions. This would help minimize the financial affect of the overtime pay, as well as lessen the grueling hours required of each employee.

It would then be the regional managers’ responsibility to relay the new guidelines to each store manager, who would in turn pass them along to the various department managers in his or her store. Check-ups must be made regularly at all levels to ensure compliance. At first, these checks should be fairly regular, once a month would suffice. As management gains more confidence in all managers’ ability to implement the new guidelines as intended, these checks can become less and less frequent, until they can be eliminated altogether.

To reinforce the effort, company-wide awards which recognize managers for their exemplary treatment of employees (an “Employee Welfare All-Star” award for example) can also be established sometime after the initial cascade. For this to be effective however, it must be treated with the same importance and prestige that other company awards have.

LEARNING POINTS

In this case, we have learned that while a company’s effectiveness and efficiency are its two basic measures of success, they should not come at an unacceptable price, such as the welfare of the employees involved. The employees of a company, who drive its success, must always be treated fairly and ethically.

We also gained an appreciation of the many motivational strategies that a company can use, and the advantages and disadvantages of each. Since these can significantly alter a company’s productivity, management must carefully decide the best means of motivating its employees, to ensure their best chance of success.

REFERENCES

Certo, Samuel C. Modern Management Diversity, Quality, Ethics & Global Environment. 2000. New Jersey: Prentice-Hall, Inc.

http://en.wikipedia.org/wiki/Maslow%27s_hierarchy_of_needs