Nordstrom Inc: Principles Of Management And Leadership Essay
Nordstrom Inc. was started as a small shoe shop in Seattle in 1901 by John W Nordstrom and Carl Wallin with $ 13000 that John had earned from a goldmine stake. John had left his home in Switzerland in 1887 with 5 Dollars, to make his fortune in the New York City (“Nordstrom Company History”). He had to struggle for 14 years before he could make a modest beginning as an entrepreneur. The strong customer orientation earned the shoe store a dedicated customer base and enabled the owners to open a second store in 1923. After the retirement of John and Carl, the business was taken over by John’s sons who carried forward their father’s strategy of customer service. By 1960, the small shoe shop had become the largest shoe store in the country and with eight locations in Washington and Oregon; it was the largest independent shoe chain in the United States. Over the years the company has diversified into a variety of fashion related businesses and formed strategic alliances with business leaders. Currently, the Company is run by a fourth generation of the Nordstrom family who follow the principle of customer service as religiously as their predecessors. The organizational culture, design and strategy of Nordstrom are all woven around the one guiding principle of maximum customer satisfaction. The company now operates 299 stores in 38 states and is planning to open more in the near future.
II. Organizational Culture
“Through this door pass the most courteous people in the world-” this is a sign inside Nordstrom employee entrance in many locations, which sums up the essence of Nordstrom’s organizational culture (“What makes Nordstrom unique?”). The salespersons are the most important people at Nordstrom. They may belong to different age groups, ethnicities and lifestyles. But their common trait is that they genuinely like other people and will go out of their way to make other people happy. The Company’s philosophy of total customer satisfaction finds expression through these people. The Company always stands by the salespersons’ decisions taken with the objective of providing extra satisfaction to the customer, irrespective of the cost implications. This encourages the salespersons to take bold decisions. The Company values the information generated through interaction of its salespersons with each customer. It is as though each salesperson is an entrepreneur himself and is free to take care of his customers as per his judgment. The salespersons strive to earn customer trust and establish long term relationships with them. They take the initiative to inform the customers about new arrivals of their interest. The importance given to customer feedback is evident from the words of Pete Nordstrom at investor’s conference, December 6, 2000 in New York City, “We’re thankful to have customers that care enough about our store and merchandise to tell us how they feel (What makes Nordstrom unique?).”
III. Organizational Design
The Company has a reversed pyramid structure with the sales and support people being given the highest importance and everyone else in the hierarchy working towards supporting them. The sales and support people are themselves guided by the customers and this is signified by placing customers right above the pyramid. The Board of Directors are at the lowest level signifying that they act as support staff for all the other functions in the company rather than exhibit their authority and control. The ownership has been with the Nordstrom family all along, which allows for continuity in policies. The Company does not bind the employees to observe many rules like conventional companies. In conventional companies, the employees are primarily concerned about not breaking any rules. In all likelihood, exceptional performance may not offer the employees immunity against breaking a few rules in the best interests of the company. The Nordstrom Employee Handbook given to all new recruits is just a gray card which reads as follows:
“Welcome to Nordstrom .We’re glad to have you with our Company. Our number one goal is to provide outstanding customer service. Set both your personal and professional goals high. We have great faith in your ability to achieve them.
Nordstrom Rules: Rule #1: Use your good judgment in all situations.
There will be no additional rules. Please feel free to ask your department manager, store manager or division general manager any question at any time (Spector and Mccarthy).”
IV. Organizational Strategy
The Company’s strategy is formulated with just one basic objective; that of focusing solely on whatever is required to create a satisfied customer.
“In store or online, wherever new opportunities arise, Nordstrom works relentlessly to give customers the most compelling shopping experience possible. The one constant? John W. Nordstrom's founding philosophy: offer the customer the best possible service, selection, quality and value (Nordstrom Company History).”
If there is any doubt the company encourages the employees to err on the side of doing too much for the customer rather than doing too little. An unconditional money back guarantee with no questions asked is the return policy at Nordstrom and each sales person is authorized to give the refund. In Jim Nordstrom’s words-
‘‘People will work hard when they are given the freedom to do the job the way they think it should be done, when they treat customers the way they like to be treated. When you take away their incentive and start giving them rules, boom, you’ve killed their creativity (as quoted by Spector and Mccarthy).’’
The layout of the Nordstrom stores provides for logical arrangement of goods and the presentation is attractive. The customers are tempted to look at many other items besides what they originally thought of buying. There is also enough space to move about, without bumping into people coming in the opposite direction. The general idea is to ensure that the customers are least distracted from the main act of looking around for their favorite items by physical obstructions or other inconveniences. The salespersons are in no hurry to close a sale because they instinctively realize that more time spent inside can mean additional purchases.
The company encourages the salespersons to do exemplary customer service by giving tangible appreciation for every act of exceptional performance towards customer satisfaction. Pace setters, employee of the month, customer service all stars, VIP club etc. are all regular awards given to Nordstrom sales personnel for excelling in the area of customer service (Spector and Mccarthy).
The people strategy at Nordstrom is clear from the words of Jammie Baugh, the general manager of Southern Californian Region-‘‘Giving away responsibility and authority is the ultimate expression of leadership. At Nordstrom, we create an environment for empowerment. We assemble a team and allow them to fail, but obviously, we’re there for them when they need us (as quoted by Spector and Mccarthy).” The remuneration of the employees is linked to targets achieved by the salesperson, in the form of commissions. Also the company does not recruit managers from outside, but promotes from within based on performance. By linking monetary benefits and career progression to performance, the company is able to motivate its employees to do their best.
V. Business Expansion Strategy
The company has been following an expansion strategy of acquisitions from 1963 onwards. From shoes it was a logical step to acquire an apparel business (Seattle –based Best Apparel). Faconnable, a European men and women fashion collection was owned by Nordstrom from 2000 to 2007. The company purchased majority shares in Jeffrey fashion boutiques in 2005 and stakes in Los Angeles-based HauteLook and kids wear brand Peek in 2011. Sale of British fashion brands Topshop and Topman were the highlight of 2012. Trunk Club, a personalized clothing service was acquired in 2014. Treasure and Bond in Manhattan’s Soho neighborhood was operated by Nordstrom from 2011 to 2013. It may be seen that the company has been following a policy of related diversification by acquiring famous brands related to fashion. The company’s core competence in giving excellent customer service is the key factor required for success in all these businesses. By choosing businesses having synergy with its core competence, the company has been able to sustain for so long against stiff competition.
VI. Competitive Strategy
Bloomingdales, Macy's, Dillard's, Saks Fifth Ave, and Neiman Marcus are the main competitors to Nordstrom. Nordstrom’s competitive strategy is one of differentiation through excellent customer service and product quality. The company has built up a brand image and brand loyalty which has earned it a large customer base that is willing to pay more for the quality, guarantee and reliability of Nordstrom. The company’s strategy of trying to please the customers in innovative ways by using its team of highly motivated and empowered salespersons is the best one that it can use to keep its competitors at bay. The elite customers who are accustomed to Nordstrom quality and personalized service are not likely to take the risk of switching the brand for marginal monetary advantages and the Nordstrom sales force is quite capable of keeping their customers.
With the increasing popularity of internet and e-commerce, Nordstrom realized that it can use the internet and online access innovatively to deliver maximum service to the customers. By integrating nodstrom.com and the Nordstrom App with the inventory management system, immense possibilities have been realized to satisfy the customers better. Also the salespersons use the internet to painstakingly collect data about their customer preferences and even shopping attempts which failed. In fact Nordstrom has digitized its business model with modern technology and this has helped the company’s revenues increase by 50% over the past five years (Ross, Beath and Sebastian). Since 1998, Nordstrom has been allowing 24-hour-a-day shopping facility at Nordstrom.com and now with free shipping and returns. It has also provided customers with mobile shopping apps allowing them to use it in various ways; tweet, pin or share. The Nordstrom Rack has been a great success offering great stuff at unbelievably low prices. More Nordstrom rack stores are being opened considering the popularity.
Though much of the future business is expected through e-commerce, the company believes that it has to maintain its brick and mortar stores also in top form. The company wants to maintain “best-in-class experience at all times, whether they are in the store, at home or on a mobile device (Speer).”
VII. Workplace Diversity
The company realized very early that it is necessary to employ people from different backgrounds to serve diverse customers. By doing so, the company aimed at getting information about what is happening in the society from different viewpoints. Also the company would benefit by having a cosmopolitan outlook and be more acceptable to all sections of the society. Nordstrom employed around 70 percent women and 40 percent colored people as of 2007. Two colored people and three women also served on the Board. The company is also committed to give employment to disabled persons and sexual minorities.
VIII. Corporate Social Responsibility Initiatives
The Company sources most of its merchandise from partners who are well trained in the code of conduct, partnership guidelines and social responsibility audit process of Nordstrom Inc. The Company undertakes regular audit to assess the labor conditions, compensation packages and the surrounding environment of its manufacturing partners and also assists in helping them to comply with relevant standards. Partners are also assessed for compliance with laws regarding human trafficking and slavery. Nordstrom employees in supply chain related functions are specially trained in identifying and resolving such problems (“Our Focus on Protecting Human rights: Responsible Manufacturing”).
Nordstrom is a founding circle member of Sustainable Apparel Coalition which studies the impact of apparel and footwear industry on environment. SAC has launched Higg Index to measure sustainability of these products in relation to the environment. Nordstrom is making constant efforts to reduce carbon dioxide emissions through improved fuel economy of the fleet used for transportation of their goods. Other environment friendly initiatives of the company are recycling of metal, plastic, glass, paper and cardboard waste and use of recycled cartons for packing. Recycling of organic waste from their restaurants is also done on priority. The company is installing energy efficient LED lighting in all their new stores and also plans to switch to LED lighting in the existing stores also over a period of time. The company is aggressively practicing clean and responsible use of water in all their operations, stores and other facilities and also encourages channel partners to do the same. On the human rights front, Nordstrom is monitoring 100% of the factories in 37 countries belonging to Nordstrom Product Group business for compliance to the partnership guidelines. Nordstrom’s commitment to such initiatives is well publicized with details of achievement vs. target.
Nordstrom believes in giving back to the community in which their businesses are located. In 2013 it made cash disbursals to 447 organizations in all 35 states where Nordstrom and Nordstrom Rack stores are located and $1.1 million to HIV/AIDS organizations (Sharing our progress from 2013). It also gave $10000 scholarship to 80 outstanding high school students and provided 10000 shoes to kids through Holiday Giving program.
The Nordstrom story is an example of how a business can manage to survive in a competitive environment without resorting to unethical practices. It is the gold standard for all other businesses in customer service. From the time of incorporation the company has been following the strategy of improving customer service. Through four generations of the Nordstroms, the one thing that has remained constant is this commitment to providing customer satisfaction. More importantly, the company reposes full faith in its energized and empowered team of salespersons to find innovative methods of providing maximum satisfaction to the customers. The company incurs considerable expenses to provide ample space for movement inside its stores. Its liberal return policy and employee welfare schemes also cost money. However, the philosophy of the company is to keep the employees and customers happy. Over the years, the strategy of keeping people happy and satisfied has paid off well. The company has also been discharging its duties as corporate citizen quite well as can be seen from the various concrete measures adopted to save the environment. With record sales of $ 13.1 billion in 2014, the company is set to scale new heights.
X. Works cited
“Nordstrom Company History.” Web. 27 March 2015 http://shop.nordstrom.com/c/company-history?origin=leftnav
Spector , Robert and Patrick Mccarthy. “The Nordstrom Way: Inside America’s #1 Customer Service Company.” Web. 28 March 2015. http://cdn2.hubspot.net/hub/155473/file-375011712-pdf/nordstrom_way_pdf.pdf
Ross, Jeanne W., Cynthia M Beath and Ina Sebastian. “Why Nordstrom’s Digital Strategy Works (and Yours Probably Doesn’t)”. 14 January 2015. Web. 27 March 2015 https://hbr.org/2015/01/why-nordstroms-digital-strategy-works-and-yours-probably-doesnt
“Our Focus on Protecting Human rights: Responsible Manufacturing.” Nordstrom Cares. Web. 27 March 2015. http://shop.nordstrom.com/c/nordstrom-cares-responsible-
“What makes Nordstrom unique?” Web. 27 March 2015.
Speer, Jordan. “Nordstrom's Big Secret Revealed” Apparel. September 25, 2012 Web. 29 March 2015. http://apparel.edgl.com/news/nordstrom-s-big-secret-revealed-82375
“Sharing our progress from 2013.” Web. 27 March 2015. http://i.nordstromimage.com/images/default/shop/image/shops/cares/2014/1006/SOP_2013_FINAL.pdf