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THE NORDSTROM WAY

The Nordstrom Way: Room for Improvement in Practice and Policy Shanna Daniels February 28, 2011 Organizational Behavior, MGMT 3010-01

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THE NORDSTROM WAY Abstract Nordstrom has become one of the most successful department stores in the United States. Despite its recent expansion, Nordstrom claims to have maintained a strong organizational culture to which it attributes a lot of its overall success. The company has high expectations for its employees and the services they must provide. Nordstroms customer service policies, together making up what the company calls the Nordstrom Way, often require workers to utilize their own free time and go to personal trouble for their customers. Managers evaluate salespeople based on their sales per hour; additionally, employees calculate commission percentages according to sales per hour. Elaborate incentive programs help keep workers on track towards achieving departmental sales and customer service goals. While several of Nordstroms employees express satisfaction with the companys policies, others have come forward to criticize the existing Nordstrom system and accuse the company of unjust and inappropriate labor practices. In the face of Nordstroms continuous expansion and success, its workforce remains divided about whether or not the working conditions and incentive systems are fair. Improvements that would increase employee job satisfaction and organizational commitment can be made on the basis of two basic platforms: the companys compensation system and management style.

Executive Summary

THE NORDSTROM WAY At the turn of the 20th century, John Nordstrom opened up a small shoe store in Seattle that launched the beginning of what has become one of the most successful retail store empires in the United States. With net earnings that exceeded $200 million in the 1990s and an ever-increasing number of outlets and employees, Nordstrom is an extremely successful empire. Amidst rapid development and change, companies face new challenges that could significantly affect their organizational cultures. Nordstrom, however, claims to have cultivated a family orientation among its employees undamaged by the companys drastic expansion and success. Instead, the company boasts that its impeccable, all-encompassing customer service and family-oriented environment, called the Nordstrom Way, has won customer loyalty and increased economic success. In accordance with the Nordstrom Way, an employee should be upbeat, ambitious, and self-motivated in the store. Each salesperson must be goal-oriented and show an immense attention to detail. He/she records all customer interactions in personal books and must consistently establish valuable relationships with customers even if he/she must go outside of work-time to do so. Additionally, employees make personal deliveries and send thank-you letters to customers during their off-hours. Management emphasizes entrepreneurial opportunities by distributing personal business cards to employees to encourage the development of their own customer bases. Employees then receive bonuses based on the best customer relations. Other incentives motivate Nordstrom workers as well. Nordstrom pays some of the highest salaries in the retail business, with base pay rates significantly greater than the industry standard and commission opportunities that allow successful workers to make up to an additional $80,000 a year. Ongoing sales contests motivate workers to increase their sales per hour and top salespeople receive public recognition within their branch. Elaborate tracking systems serve as tools for employees to remain aware of their sales performance and compare their own success to their

THE NORDSTROM WAY coworkers success. Additionally, Nordstrom has a strict policy of promoting only from within to those with experience at the company. Incentives like these constantly attract employees with great sales records to the company and keep the number of employment applications twenty times greater than the number of available openings. Several employees love working for Nordstrom and do not mind the off-the-clock efforts. They enjoy the respect they get from people who know they work at Nordstrom and take pride in offering the best customer service in town. They find the demanding work environment to be a necessary part of achieving departmental success, as they enjoy being independent and creative in their work. Others, however, find the policies and expectations of the Nordstrom Way to be stifling, inappropriate, and unjust. The off-the-clock work expectations and overwhelming pressures to increase sales per hour have been central to employee complaints. Employees stock, deliver, and pick up merchandise and take any measures necessary to strengthen customer relations, such as writing thank-you letters, during off-the-clock hours. In response to accusations from the Nordstrom employees union, Nordstrom has even set aside $15 million to pay back employees for off-the-clock services. Employees have also accused Nordstrom management of engaging in other unethical practices, too. Exhibiting discriminatory behavior in the workplace, forcing employees to purchase large amounts of Nordstrom clothing to wear, and undermining top salespeople by faking letters of complaint are just a few examples. Despite the controversy surrounding Nordstrom and its practices, the company continues to expand and attract hundreds of thousands of customers each year. The Nordstrom Way In the past decade, Nordstrom sales reports reflected the companys ongoing economic success and customer popularity. In 2010, the company made $2.52 billion in revenue, up

THE NORDSTROM WAY approximately 13% from the previous year. Nordstrom also experienced a $41 million increase in net earnings from 2009 to 2010 (Hand, 2010). While Nordstrom has some very loyal employees who fully dedicate themselves to the Nordstrom Way, the store is at risk of losing valuable workers who have grown tired of the companys practices. Several employees, known as Nordies, are unhappy with the companys expectations. They feel that Nordstrom is becoming increasingly unfair in its treatment of workers and that the companys expectations are too high for the compensation they receive. Some feel that the procedures and regulations that govern Nordstrom employer-employee relations are outdated and unreasonable. Researchers Gupta and Choudhury (2009) describe employees as the scarcest but the most valuable economic resource for any organization, as the success of any business largely depends on their dedication, commitment and constant striving (p.1). In an attempt to maintain its excellent customer service reputation in the face of modern change, Nordstrom is using more advanced technologies. The company is integrating web, mobile, and catalog sales approaches to create an efficient 21stcentury-style shopping experience (Hand, 2010). From a consumer perspective, these updates are beneficial. When creating workplace policies and practices, however, company executives must consider more than just the consumer perspective and focus on the overall job satisfaction of their employees. Without improving employee job satisfaction and organizational commitment, Nordstrom risks losing its most rare, inimitable, and thus most valuable resources: its employees. Higher organizational commitment among workers, particularly affective commitment, will increase task efficiency and decrease turnover rates within the company. Nordstrom executives, especially, must strive to increase employee job satisfaction since their employees have come forward to publicly express their frustration. Changes that focus on improving job satisfaction and organizational commitment will result in a satisfied, committed

THE NORDSTROM WAY workforce and more well-rounded success for Nordstrom. Nordstrom executives must reflect on the undesirable consequences of their very own Nordstrom Way. A transformation of company policies that shifts to include the best interests of its workers will help the business retain its existing employee assets and attract new valuable ones. Nordstrom could make several changes that would have drastic effects on employee satisfaction at only a negligible expense to the company. More specifically, making improvements to two major aspects of the companys existing practices: the compensation system and decentralized approach to management will increase employee job satisfaction and organizational commitment at Nordstrom. One of the first major ways Nordstrom could revamp its public image would be to improve its compensation system. This element of the two-part improvement plan is particularly important today as the economy worsens and employees require adequate wages. The company has not set up specific ways to measure workers performance beyond assessing teamwork skills for promotions. Nordstrom places great emphasis on employees sales-per-hour rates and fails to take into account the many other ways an employee can perform for the company. As a result, employees feel compelled to clock in for as few hours as possible to increase their sales-per-hour rates, while writing thank-you cards or making personal deliveries to customers off the clock. When employees have to perform stressful tasks off the clock, they feel underpaid, unappreciated, and exploited. Thus, Nordstroms own paradoxical sales-per-hour criteria limit employees; they can either boost their sales-per-hour rates (by keeping non-sales hours off the clock) or experience a decrease in these rates by honestly reporting their actual number of hours. If employees could write thank-you notes and make calls to customers in the store or in an office (where this work time could be accurately monitored), employees would be more willing to perform these jobs and consequently, superb customer service standards would remain upheld.

THE NORDSTROM WAY Nordstrom could initiate a program in which employees can perform non-sales duties outside of regular shift hours but still receive standard base pay. In this type of program, employees would have incentives to establish personal relationships with customers because non-sales hours receive the same hourly pay as sales-hours are, but do not have the commission opportunities that come from sales made during their scheduled shifts. Because employees may not take time out of their scheduled shifts to perform these tasks, a) Nordstrom could still measure and compare sales-perhour rates by comparing employees sales per shift, b) the tasks could still not be considered mandatory, and c) those who show greater initiative and motivation in staying at work longer will, in theory, boost their own sales-per-shift rates by creating customer loyalty. Data on the ratio of extra-time hours to shift-hours completed by employees could measure the effectiveness of this program. This ratio would reveal how often employees are coming in to complete non-sales tasks and thus would be a direct measure of how effective the offer of standard hourly pay is in motivating employees to take extra non-sales measures. A greater ratio would indicate that employees are generally more willing to complete these kinds of tasks and, ideally, this willingness would reflect their overall satisfaction in coming into work more often. Additionally, employees might not object to completing personal deliveries if Nordstrom developed a standard pay-per-delivery rate. Such a rate would be substantial but proportionately smaller than hourly rates for work done at actual stores. Standardizing delivery rates would increase the frequency of personal deliveries made by employees. Because employees would be paid less than what they are paid for working on-site at Nordstrom, only more motivated and committed employees would follow through in making these deliveries. The effectiveness of establishing a pay-per-delivery rate in motivating employees could be evaluated by comparing the number of personal deliveries an employee makes to the number of scheduled hours he or she

THE NORDSTROM WAY completes each week. Richard D. Freedman and Jill Vohr explain that Nordies should be genuinely interested in seeing that all needs [of the customers] are met (Champoux, 2010). As long as Nordstrom employees feel that they receive fair rewards and recognition for their work, they will continue to work exceptionally hard and Nordstrom will maintain its above and beyond customer service reputation. Furthermore, Nordstroms compensation system is not in accordance with the expectancy theory of organizational behavior research. Expectancy represents the belief that exerting a high level of effort will result in the successful performance and completion of a task; employees sales rates, however, dominate task performance for Nordstrom. With Nordstroms current system, an employee can put in a tremendous level of effort but he or she may not receive high task performance scores because that effort is put forth outside of the traditional view of the company. Nordstrom should expand its measure of job performance to account for other ways an employee can perform on the job besides just making sales. Employees already have a sense that their levels of effort determine levels of job performance; now, managers and executives must demonstrate that more than just one dimension comprises performance. If employees feel like management properly rewards their efforts, extrinsic and intrinsic motivation for employees are likely to increase. The second significant change Nordstrom can make to its current organizational structure would be to take a more centralized approach to management. Instead of each manager at each branch enforcing his or her own set of rules, Nordstrom should strive for more consistency across all branches. The current decentralized approach to management affects workers satisfaction with their supervisors and ultimately their job performance and organizational commitment. Nordstrom lacks a specific company-wide set of evaluation standards. Issues regarding procedural justice have

THE NORDSTROM WAY come to the forefront of employees concerns, as they grow increasingly dissatisfied with the negative outcomes of Nordstroms policies. More consistent procedures across Nordstrom branches would increase employees ability to assess the fairness of the rules and processes to which the company adheres. Managers are solely responsible for evaluating the employees that work under them and thus employees feel judged by a single person rather than by a group of supervisors. To prevent this problem, Nordstrom managers should work towards further centralizing its management with a focus on teamwork and achieving common goals. This change would decrease the disparity between worker and supervisor, increasing supervisor satisfaction as well as productivity. The relationship between an employee and his or her manager has a strong effect on the employees motivation, which determines the direction, intensity, and persistence of work-related effort. According to the goal-setting theory, assigning employees specific and difficult goals will result in higher levels of performance. Nordstrom replaced its 20-page rulebook with a one-page sheet with the words Use your best judgment in all situations, and Do whatever it takes to make the customer happy. Although this mantra may give employees autonomy, it is too vague to motivate an employee to deliver his or her best performance. Assigning specific and difficult goals shapes employees self-set goals, and thus, the implementation of a more specific set of guidelines will also improve the goals employees set for themselves. Furthermore, setting more specific guidelines could reduce confusion and cases of role ambiguity for employees. Whole Foods Market is an example of a company that incorporates a successful work culture into its business practices. For years, many have considered Whole Foods to be one of the rare companies that had a clear vision and the commitment to pursue it. Although Whole Foods and Nordstrom are in two separate industries, Nordstrom could still learn by Whole Foods

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THE NORDSTROM WAY example and adopt some better organizational practices. The former president of Whole Foods publicly addressed the companys focus on organizational culture: The true hidden secret of the company is the work culture. Thats what delivers the stores to the customers (Fishman, 2007). The Whole Foods culture also emphasizes and fosters teamwork. Teams, and only teams, have the power to approve new hires for full-time jobs. Two-thirds of a team must agree before a job candidate can become a full-time employee. All candidates must work to impress the whole team rather than just the manager. Furthermore, all candidates work for a 30-day trial period for the team to observe whether he or she is a good fit for the company. Using this method, Whole Foods is able to hire more qualified employees and promote affective commitment. Therefore, any action, positive or negative, reflects upon the entire team (Fishman, 2007). Nordstrom should adopt a similar team-oriented structure, in which the manager works along with the team toward achieving common goals. Competition in the workplace is healthy to a certain degree, so long as it provides encouragement and motivation for employees; too much competition could come at the expense of citizenship behaviors, ethical considerations, trust, and ultimately organizational commitment. Many Nordstrom employees feel that the competitive system meant to encourage employees actually oppresses them because it places them in an environment of constant pressure. Top salespeople at Nordstrom receive recognition in the way of loudspeaker announcements and other public displays. As a result, competition arises among workers and incentives for teamwork become negligible. Groups of employees are less likely to work together to achieve common goals. A team-oriented structure would reduce stress and increase trust and citizenship behaviors between employees, and foster a healthier work environment. Nordstrom could require managers to hold branch-wide social events at the start of each

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THE NORDSTROM WAY retail season. These events would serve as bonding experiences through which employees and managers could get to know each other; the company would boost morale and cultivate teamwork. The company could measure the success of these team-building events by conducting surveys to get employee feedback. Whole Foods conducts morale surveys to assess employee attitudes. The surveys ask about the employees opinions on the stores leaders, their fears and frustrations, and where they feel the company seems to be straying from its values. Interpersonal behaviors, like helpfulness and courtesy, are crucial in keeping up positive morale and are more common among workers who feel a part of the team. Whole Foods publishes its morale survey results along with financial data in its annual report to shareholders. In doing so, the company shows that improving employee morale is a priority as important as improving sales performance. Nordstrom could lower its turnover rates by following Whole Foods example. Nordstrom has done a commendable job of keeping its customers happy, but now it should redouble its efforts to keep its employees satisfied as well. A more centralized approach to management may also increase levels of trust between employees and employers. The cognitive-based trust that employees feel towards employers, which is based on a rational assessment of the companys trustworthiness, is certainly lacking. In shifting towards a more centralized management system with consistent policies across branches, Nordstrom can rebuild its trustworthiness in the eyes of its workers; employees will know what to expect from the company regardless of which branch they participate in. Nordstroms economic success may be a reflection of its ability in the retail industry, but the company is lacking in terms of integrity and benevolence; Nordstrom needs to improve its track record with employees. A more consistent management system would provide more dependable guidelines for the expectations of workers and consequently, workers will perceive more consistency in the system of values and

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THE NORDSTROM WAY principles by which Nordstrom defines itself.

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THE NORDSTROM WAY References Champoux, Joseph. (2010). Part 2 case Nordstrom. Organizational behavior: Integrating individuals, groups, and organizations (Part 2, Ch. 9). Retrieved from http://books.google.com/books? id=4n9eIYthLQ0C&printsec=frontcover&dq=Organizational+Behavior: +Integrating+Individuals,+Groups,+and+Organizations. Colquitt, J. A., LePine, J. A., & Wesson, M. J. (2010). Organizational behavior: Improving performance and commitment, (1). McGraw-Hill: New York. Fishman, C. (2007, December 18). Whole foods is all teams. Retrieved from http://fastcompany.com/node/26671/print Gupta, Palas R Sen and Paramita Choudhury. (2009). Employee Information Needs and Corporate Responses. Hand, Leslie. (20101). NordstromHigh Service 21st Century Style. IDC Retail Insights. Retrieved from http://idc-insights-community.com/posts/850948d552. Unknown. (2011). Nordstrom. Fortune: Theyre Hiring, 19. http://money.cnn.com/galleries/2011/pf/jobs/1101/gallery.best_companies_most_hiring.for tune/17.html.

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THE NORDSTROM WAY