nordstrom final
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1THE NORDSTROM WAY
The Nordstrom Way: Room for Improvement in Practice and Policy
Shanna Daniels
February 28, 2011
Organizational Behavior, MGMT 3010-01
__________________ __________________ _________________
Josh Chefec Chloe Haas Catherine Harris
__________________
Vy Linh Ky
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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. Nordstrom’s 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
Nordstrom’s employees express satisfaction with the company’s 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 Nordstrom’s 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 company’s compensation
system and management style.
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Executive Summary
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 1990’s 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 company’s 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
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$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 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.
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The Nordstrom Way
In the past decade, Nordstrom sales reports reflected the company’s ongoing economic
success and customer popularity. In 2010, the company made $2.52 billion in revenue, up
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 company’s practices. Several employees, known
as “Nordies,” are unhappy with the company’s expectations. They feel that Nordstrom is
becoming increasingly unfair in its treatment of workers and that the company’s 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 21st-century-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.
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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
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 company’s
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, Nordstrom’s 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
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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. 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-per-hour 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
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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
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, Nordstrom’s 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 Nordstrom’s 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
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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 come to the forefront of employees’ concerns, as they grow
increasingly dissatisfied with the negative outcomes of Nordstrom’s 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
employee’s 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.
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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’
example and adopt some better organizational practices. The former president of Whole Foods
publicly addressed the company’s focus on organizational culture: “The true hidden secret of the
company is the work culture. That’s 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
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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
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 store’s 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 company’s 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. Nordstrom’s
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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 principles by which Nordstrom defines itself.
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References
Champoux, Joseph. (2010). Part 2 case – Nordstrom. Organizational behavior: Integrating
individuals, groups, and organizations (Part 2, Ch. 9). Retrieved from
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+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). Nordstrom—High Service 21st Century Style. IDC Retail Insights.
Retrieved from http://idc-insights-community.com/posts/850948d552.
Unknown. (2011). Nordstrom. Fortune: They’re Hiring, 19.
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ortune/17.html.
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