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.

http://money.cnn.com/galleries/2011/pf/jobs/1101/gallery.best_companies_most_hiring.f

ortune/17.html.

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