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Case Study

Human Resources Management


Group 8
14 10 2013

What is the cause of the problems described in the case? How serious are these problems?

In 1989 Nordstrom faced various employee grievances, union allegations and class action suits challenging the legality of the companys labor practices. Nordstrom was blamed for not paying the full amount of hours an employee worked for the company. The cause of the problems lies in the Sales per Hour (SPH) compensation system which Nordstrom applied to calculate the salary of its sales clerks. This system measures the performance of a sales person as follows: weekly sales divided by hours worked. Every employee has a fixed SPH target which he/she needs to meet. Depending on whether an employee is below or above target he/she will be indirectly punished or rewarded. Several problems can be detected when evaluating employees performance solely based on the SPH ratio. First, the success and competitive edge of Nordstrom is based on its superior customer service. This service includes writing thank you notes to customers or retrieving desired items from other departments. The main problem resulting from the SPH measurement is that hours spent to maintain this service is not part of salespeoples evaluation. In addition, the SPH ratio discourages spending time on delivering customer service because every hour spent on that means losing time to achieve sales. For example, a sales clerk who is very concerned with serving a customer and thus helps to retain customers will come off badly in term of his SPH ratio compared to a colleague who is only focusing on sales and doing badly on customer service. Therefore, the SPH measure places single edged incentives to focus on sales numbers. But the work of a sales clerk is a multi-tasking job which is composed by achieving sales and delivering superior customer service. In fact, Nordstrom expects his sales clerks to fulfill both tasks but excluding the customer service from an employees payment forces him/her to render these services off-time. Consequently, the SPH ratio forces employees to make time management decisions which are usually reserved for white collar workers who earn a lot more and therefore are expected to work some hours off the clock. Thus, Nordstroms management places a lot of responsibility and pressure in combination with fierce competition on its front line employees. Second, when dividing the weekly sales by the number of hours worked, an employee is always worse off when working overtime because that will lower his/her SPH ratio. This forces employees to not report the full amount of hours they have actually worked. An additional reason for following this practice is the fact that employees who underperform will be shifted to hours of the day when it is harder to achieve sales and even may face termination. This punishment causes a lot of pressure and competition between employees and results in constant work off the clock. Finally, this dilutes the companys value of employing team players because the system provokes selfish and even uncooperative actions as exemplified in the case. Thirdly, it is also necessary to mention the problem of ambiguity in de finition of selling and non-selling time. The evidence of that is the memo, issued my management. If selling time was clearly defined, it would be easier to measure.

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The problems with implementation of performance evaluation mechanism were very serious and caused damage to the company. Everything mentioned above resulted in increasing employee dissatisfaction. Since Nordstrom ignored single sales clerks complaints about the working conditions, the labor union attended to the employees problems and raised public interest taken on by the press. Finally, the company faced various union allegations, law suits and regulatory orders. This poses a serious problem not only to Nordstroms financial situation but also to its reputation. The company had a long tradition of delivering superior customer service while having the most helpful and cheerful sales clerks in the industry. This image was admired and emulated by many other companies in the industry. But knowing about the conditions of this success modifies the shining image of Nordstrom. In the past, Nordstrom has always been a desired place to work as Patty Bemis remembers. Facing all the allegations and law suits decreases Nordstroms attractiveness as an employer. Although there were some Nordies who defended the company and spread that they are happy to work for Nordstrom this might also turn out to be a problem. Having strong supporters and accusants within the same company will separate the workforce and change the working atmosphere for the worse. In a nutshell, these problems are a threat to Nordstroms competitive advantage and overall success. Nordstroms failure to address the arising issues timely and appropriately contributed to the fact that the accusations escalated. The company should have taken the first complaints of employees seriously instead of turning them down.

Are Nordstrom employees pressured inappropriately by the sales-per-hour system? By management?

The sales per hour (SPH) system aims at enforcing an entrepreneurial spirit by encouraging competition among peers, as well as allowing employees to move up the ranks for exceptional sales results. Nordstrom believes, according to the case study, that when people apply to jobs they want to work hard and do well. Therefore, Nordstrom wants to facilitate freedom for their employees to work as hard as their hearts desire. Nevertheless, this philosophy creates major drawbacks for employees at Nordstrom. The first drawback regards the SPH system. As the name implies an employee has to be selling for this system to apply. Working at a retail store is a lot more than selling goods to costumers. It entails inventory, filling up racks, employee meetings, and especially for Nordstrom, it also includes showing exceptional customer service by delivering purchases to costumers homes. The hours spent on other tasks than direct selling to costumers drives down SPH. As many employees have stated in the case study, they feel pressured to go off the clock in order to get the best shifts and to increase their chances of being promoted and, in a worst case scenario, to keep their jobs. Even if an employee is a so-called All-Star by receiving exceptional customer feedback it is not enough to satisfy the SPH system. Without evaluating every aspect of an

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employees skills and attributions she/he makes at Nordstrom, we believe this system is too narrow and doesnt comply with Nordstroms philosophy of treating their employees as entrepreneurs. Basing evaluations solely on sales encourages employees to work extra hours without additional payment, which is in fact illegal according to federal laws. Therefore, it is safe to say that this system puts an inappropriate pressure on employees. Secondly, the way Nordstrom was decentralized at the end of the 80s may also have contributed to the pressure that employees face. When Nordstrom was rapidly growing, top management gave more freedom to department stores and regional managers. To encourage hard work from these entities bonuses were put in place to make sure budget goals were achieved. One could argue its a post hoc fallacy to state that decentralization put pressure on regional managers and department stores, which in turn put pressure on their front line employees for certain goals to be met. But one cant den y the fact that regional managers are also under pressure and rely heavily on their employees to perform according to the systems that have been put in place for that exact reason. This decentralization makes top management lose touch of their respective stores and employees, and one way for them to keep track is mainly through sales figures. We want to argue that the combination of decentralization and a rather skewed performance measurement system is what triggered the pressure on employees. It seems like the SPH system has been too heavily relied upon to measure success of Nordstrom stores after the decentralization, and ultimately shedding light on many of its drawbacks. This might also explain why SPH used to be a successful system for years before the expansion of Nordstrom, as the top-management could more easily monitor their stores and employees first hand. Also, Nordstrom wasnt facing the same competition until Neimen Marcus and other department stores started following Nordstroms success recipe. By expanding to win back their market share, Nordstroms employees welfare seems to have been neglected or maybe even forgotten in process. The problem with performance measure also lies within management segment. It can be deduced from a case, that management clearly encourages their subordinates not to punch the clock. This might be due to the managers evaluation being connected with the department SPH. Hence, managers encouraged their employees to work extra hours without remuneration.

How would you change management systems at Nordstrom?

Nordstrom Management system became seen by the public as a hiring and exploiting monster of the retailing market, after the first major lawsuit in 1991, by Local 1001 clerk union. Whether these work conditions were on purpose and part of a big management plan, in order to enforce a exploitation of employees and obtain better sales and customer service, or whether they were simply the result of a growing decentralized management who eventually, due to the human ambitious and competitive nature, lead to poor social and labor conditions, we cannot say.

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We can however see the negative results and conclude about the necessity for change. How so? It can be done by identifying the measures that are being taken and, also important, the agents behind their decision and implementation. Therefore, lets recapitulate the situation: As previously mentioned in this case study, Nordstrom runs its retail business through a very professional and high-qualified sales team, whose payment plan is composed of base salary plus a sales commission. Also, the inner competitiveness and efficiency of the customer service is incited trough a SPH performance indicator but, at the same time, in order to maintain Nordstrom costumer service values, the clerk loses selling time. That being said, this indicator is, despite appearing competence-stimulating, a variable which not only does not truly represents the actual work of the clerk but also it induces fear and emotion/job instability into the workers because it forces them to choose between two courses of actions: exert their right to report the extra hours dedicated to customer service, but at the cost of being discriminated when it comes to job recognition, performance evaluation and shift schedule; or ignore the extra work they have and basically give their much off-hours time to the company, in order to keep up with their SPH and, if possible, achieve better schedules. Therefore, the problem is quite identifiable we are in the presence of a performance measure system which is to narrow (too much heavily dependent on individual performance) allied with a decentralized management whose store performance is independent and rewarded and recognized based solely on goal achieving. To solve this situation, Nordstrom upper management needs to focus on two issues: middle management orientation and reshape the performance and compensation process. Meaning: the lack of communication between upper and middle management is a serious negative contributor for this situation. If Nordstrom wishes to maintain an excellent customer support policy, it cannot loose completely the control over the enforcers of such policy middle management. It is true that the dimension of such company demands decentralization of decision making in order to optimize work load and, in return, increase efficiency, however, giving only goals to middle management and total liberty to pursue them, as it has been proven, only foments the creation of an exploitable employee environment. Therefore, the middle management autonomy needs to be reduced. How? One possible solution would be monthly meetings with goal stages planning. Through this measure, the company would be giving specific goals to middle management to achieve as well giving itself a more controlled environment for experimenting, controlling and/or correcting certain approaches/outcomes, if the middle management doesnt perform adequately. It should also be included a process of 180 feedback confidential evaluation by the employees on a diverse range of matters, such as works conditions, management expectations, overall personal-workload balance evaluation; a process of compensation too narrow and a vicious and cynical process of performance evaluation are the main issues when we address the employee side of the problem. This creates an environment where the workflow transparency leads to discrimination and worse job conditions and where the personal time sacrifices are the remaining tools for achieving their professional expectations for better conditions and payment. All of this a product of a flawed SPH system. Therefore, one of

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the most immediate responses would be to broaden the performance measure. We dont have to be radical, but changes are necessary, in order to give more importance to cooperation and to reduce the likeness of dysfunctional behaviors. If the goals are the same, and customer support is to be kept as the differential point in the market for Nordstrom, innovation should be applied in some sort of information systems which employees can freely activate when necessities, such as home deliveries or going to the nearest tailor shop, regarding the customer support, arise. Such system would then be integrated with the SPH performance approach, who could then be much more realistic and actually quantify the real commitment of the clerk to the organization. Another possibility would be the creation of a golden schedule certain period of hours of the clerk schedule that is solely applied to the satisfaction of customer needs (post sales services) and/or logistics tasks. These hours would not be considered in to the PSH system and their existence would allow to differentiate clearly between working hours and post-sales support hours. At the same time, commissions should see a reduction in their significance on the employee payroll and develop more unified goals for employees to achieve. This may promote the free -ride situation, but then again, if allied with a more realistic and fair PSH system, there isn t that much less productivity that can be admitted from an employee.

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