Nordstrom: Dissension in the Ranks?

October 28, 2010

Nordstrom: downtown Seattle. Image by  Jeff Blucher.

Nordstrom: Dissension in the Ranks?
Case Analysis
The problems of Nordstrom described in the case are introduced by presentation of accounts of personal experiences and grievances from two former sales clerks of the company. Though the emphasis in each of those accounts are slightly different (one is focused on the issue of working off the clock, and the other on the over-demanding hard-handed treatment of the employees by the management), they both make reference to one common problem. The problem was the implementation of the performance evaluation mechanism, namely – sales per hour. The integral part of the problem was also identified in poor differentiation of “non-sell” and “selling” time. Specifically, there were claims that sales clerks were performing essentially expected functions, such as merchandise preparation, writing “thank you” notes, participation in mandatory meetings, and the likes, on “off the clock” time, because they were coerced by the existing performance evaluation system to keep their” sales per hour” ratio high.

In analyzing the root of the problem we need to acknowledge that the concept of evaluating performance of sales personnel on the basis of sales volume or some kind of sales ratios, is neither foreign, nor inherently evil in the retail business. As a matter of fact, we know that even the Sales Per Hours system implemented in Nordstrom had proven somewhat effective for over 20 years since its introduction in mid-sixties, before the problems described in the case occurred. It can also be inferred with reasonable degree of confidence, that this performance evaluation system was a contributing factor to Nordstrom becoming one of the best performing specialty retailers, whether you measure it by the highest sales per square foot ratio, or by its high profit margins.

That said, we can clearly observe one chronic issue in sales associates compensation practices: their “non-sell” hours were routinely treated as” sales” hours, thus effectively reducing their sales per hour ratio with all ensuing negative consequences for their total compensation. This practice eventually lead to the atmosphere when sales clerks felt persistent pressure to not record their hours while performing so-called “heroics”, which were essential for customer satisfaction, but detrimental for their personal paychecks, and working conditions in general. If the fact that many sales associated chose not to record their “non-sell” hours under the actual or perceived pressure was not bad enough, then many mid-level managers exacerbated the situation by explicitly bending the rules. Examples brought up by the employees included some insidious practices, such as displaying “Do Not Punch the Clock” signs during the “mandatory” meetings, so that the associates could not record their working hours.

Even though the cause of this managerial pressure is not directly identified in the case, it can be reasonably inferred that the performance evaluation system of mid-managers was also a part of the problem. It is obvious from the actions of the managers that they were evaluated, at least in part, based on the SPH of their subordinates, just like the sales people were evaluated based on their personal SPH. This seems to be reasonable explanation why the managers would go sometimes to extreme lengths in their attempts to discourage the sales subordinates from recording all their working hours. This behavior of the mid-level managers was also partially supported by the fact that definition of “selling” and “non-sell” hours was not very clearly differentiated in the company’s policies. The evidence of this ambiguity in defining the “selling” and “non-sell” hours is presented by the fact that the Nordstrom family had to issue the Internal Memo Differentiating “Selling” vs. “Non-Selling” Time amidst the labor disputes crisis in mid-1989.
Overall we can identify three major causes that contributed to the problems that hit Nordstrom at the end of the 80s:
• Vaguely or ambiguously defined “selling” and “non-selling” hours
• Using Sales per Hour ratio as the leading factor in performance evaluation and work compensation. This performance indicator was not properly balanced by other factors, such as customer satisfaction, in actual work compensation
• Performance evaluation and compensation of sales associates and mid-level managers were in conflict, instead of being supplementary to achieving the company’s goals, and supporting individual interests of the employees. Given the relative autonomy of mid-level managers in making many decisions, this conflict of interests implicitly encouraged managers to bend the rules to their own benefit.
• Sales per Hour system in general was based on a somewhat superficial ratio, which was hard to implement and keep the record of, and was exploiting employees’ best efforts without giving them fair recognition and compensation.
All these seemingly minor issues by themselves, when left unaddressed for a length of time, came to a collision and eventually erupted in multiple labor disputes, class action suits, and cost the company millions of dollars in settlements, as well as partial loss of reputation.