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Nordstrom-Strategic Management

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Nordstrom Case Analysis.Dissension in the ranks?

Nordstrom Case Analysis.Dissension in the ranks?

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  • Outstanding salespeople: the envy of the industry in terms of their quality and productivity Superior customer service - “Nordies”; Extraordinary services  drive to another stores for desired items;home-deliver purchases;call for arriving merchandise;assemble complete outfits;thank you notes Decentralized system; Managers basically ran the shop and were responsible for goals achievements/failures; Employee motivation system; High salary; Promotion possibilities (promoting only from within); Extremely strong customer loyalty; Availability of product Excellence of the service provided
  • Outstanding salespeople: the envy of the industry in terms of their quality and productivity Superior customer service - “Nordies”; Extraordinary services  drive to another stores for desired items;home-deliver purchases;call for arriving merchandise;assemble complete outfits;thank you notes Decentralized system; Managers basically ran the shop and were responsible for goals achievements/failures; Employee motivation system; High salary; Promotion possibilities (promoting only from within); Extremely strong customer loyalty; Availability of product Excellence of the service provided
  • Outstanding salespeople: the envy of the industry in terms of their quality and productivity Superior customer service - “Nordies”; Extraordinary services  drive to another stores for desired items;home-deliver purchases;call for arriving merchandise;assemble complete outfits;thank you notes Decentralized system; Managers basically ran the shop and were responsible for goals achievements/failures; Employee motivation system; High salary; Promotion possibilities (promoting only from within); Extremely strong customer loyalty; Availability of product Excellence of the service provided
  • Better working hours: when the store is more crowded
  • Better working hours: when the store is more crowded
  • Contradictory pressure: Por um lado ha incentivo a vender muito mas por outro querem que tenhas um serviço muito personalizado ( ir levara acasa) e atencioso Disloyal competition: Even though team work is encouraged, there is peer pressure that sometimes result in undisired behaviour such as sharking: stealing credit for sales made by other staff ( exemplo da xavala) Preverse incentive to violate state and federal fair labor standard laws. Working off the clock Pros Group recognition: All stars Decentralization: freedom to make their own decision; “ your own business” Promotion policy : only within the company
  • Contradictory pressure: Por um lado ha incentivo a vender muito mas por outro querem que tenhas um serviço muito personalizado ( ir levara acasa) e atencioso Disloyal competition: Even though team work is encouraged, there is peer pressure that sometimes result in undisired behaviour such as sharking: stealing credit for sales made by other staff ( exemplo da xavala) Preverse incentive to violate state and federal fair labor standard laws. Working off the clock Pros Group recognition: All stars Decentralization: freedom to make their own decision; “ your own business” Promotion policy : only within the company
  • For instance, if a person has a substandard SPH, they can get a bad shift, are scheduled for less hours, or even be terminated. So in order to maintain the tradition and their competitive advantage of superior customer service, sales people would have to write thank you notes, deliver purchases, and even help change a flat tire on their own time. If they booked those hours, their SPH would go down because they weren’t actively selling anything and would most likely be penalized for it in the end. But there really wasn’t a clear definition as to what was “selling time” and “non-sell” time. The employees struggled with this because they weren’t exactly sure how the types of activities they did would impact their SPH. Nordstrom intended the SPH to be an incentive and a way to reward top sellers through commission, but they were really using it as a tool to force employees to work off the clock as to not impact their SPH and would punish them if they booked all the hours they worked.

Transcript

  • 1. Dissension in the Ranks? Mariana P.Monteiro | Joana R.Santos | João Ildefonso
  • 2. Company’s Background
    • 1901- Founded by John W.Nordstrom
    • Family Business
        • Shoes
    • 1989- Nation’s leading speciality retailer
        • Apparel
        • Shoes
        • Acessories
    • 59 Department Stores, 6 states
    • 20 years of uninterrupted earnings growth;
    • Highest profit margins in the Industry;
    • National Retail Merchants Association Gold Medal
    Background Comission system Competitive Advantage Comp. pratices Pros & Cons Legal Implications
  • 3. Competitive Advantage
    • Nordstrom Management philosophy:
    • “ Offer the customer the best in service, selection, quality and value ”
    Source of Competitive Advantage: Superior Customer Service
    • Decentralized system
    • Product availability
    • Nordstrom Image
    • Customer loyalty
    • Lofty sales
    • Sales clerks: “Heroics”; “Nordies”
      • Extraordinary services
      • Higher salaries
      • Promotion possibilities
    Background Comission system Competitive Advantage Comp. pratices Pros & Cons Legal Implications
  • 4. Competitive Advantage- Nordstrom vs. Competitors Nordstrom Inc. Stock price ( 1988-2000) vs. Macy’s Inc. Stock price ( 1992-1999) Norstrom Inc. 1990 stock price  $5,2175 Norstrom Inc. 1992 stock price  $10,375 Macy’s Inc. 1992 stock price  $6,6875 Source: http://www.google.com/finance Norstrom Inc. 1990 stock price  $10,438 Background Comission system Competitive Advantage Comp. pratices Pros & Cons Legal Implications
  • 5. Competitive Advantage-Current situation Source: http://retailsails.com/monthly-sales-summary Nordstrom’s annual sales Macy’s annual sales Background Comission system Competitive Advantage Comp. pratices Pros & Cons Legal Implications
  • 6. Management Strategy - Commission System High-service strategy Incentive compensation system (SPH)
    • SPH Target = (SALES – MERCHANDISE RETURNED)
    Nº HOURS WORKED
    • Actual SPH >Target SPH  6,75% to 10% commision on net sales
    • Failure to meet target SPH  Base hourly wage ($9)
    • More and better working hours
    • Less working hours  Termination
    • Incentive to work off the clock rather than report all hours
    Background Comission system Competitive Advantage Comp. pratices Pros & Cons Legal Implications
  • 7.
    • Example : A sales clerk who works 50 hours/week; weekly sales of $8000
    • If hours reported= 40, SPH= $200
    • Weekly earnings= $540
    • b) If hours reported= 50, SPH= $160
    • Weekly earnings= $587,25
    Lower SPH reduces clerk’s ranking among peers Fewer scheduled hours Worse shifts Management Strategy - Commission System Different payments for low performers vs. high Background Comission system Competitive Advantage Comp. pratices Pros & Cons Legal Implications
  • 8. Management Strategy – Complementary practices
    • Motivational Methods
      • Sales contests
      • Group recognition (praise letters read aloud)
      • Honor: “Customer service All-Stars”(Discounts + efforts documented)
      • Employees’ ability to track their performances
    Background Comission system Competitive Advantage Comp. pratices Pros & Cons Legal Implications
  • 9. Sales Force Management - Pros & Cons Background Comission system Competitive Advantage Comp. pratices Pros & Cons Legal Implications
  • 10. Sales Force Management - Pros & Cons Freedom to make decisions ( decision-making responsibility) Objectiveness of the sales clerks’ contribution for the company “ Customer service All-stars” Opportunities for rapid advancement Pros Background Comission system Competitive Advantage Comp. pratices Pros & Cons Legal Implications
  • 11. Extra selling hours affect SPH negatively Equal emphasis to service, profitability and mini-managerial autonomy “ Sharking”: stealing credit for sales made by other staff Working off the clock. Violating state and federal fair labor standard laws. Sales Force Management - Pros & Cons Cons Preverse incentive Disloyal competition “ sharking” Contraditory pressure “ Selling/Non-selling” work time Background Comission system Competitive Advantage Comp. pratices Pros & Cons Legal Implications
  • 12. Legal implications and new system procedures
    • Nordstrom policies and compensation systems became target of:
      • Employee complaints
      • Union allegations
      • Law suits
      • Regulatory orders
    • Strong presence of the Union in Washington
    • UFCW Local 1001
    • New procedures
      • Back-pay fund
      • New company pay policies
      • Sign-out sheets
    Background Comission system Competitive Advantage Comp. pratices Pros & Cons Legal Implications
  • 13. Dissension in the Ranks? Mariana P.Monteiro | Joana R.Santos | João Ildefonso THANK YOU!