Nordstrom’s problems… Nordstrom is a classic case of how complicated and counterproductive the business becomes if a system is not properly designed or implemented. Nordstrom’s intentions were very good when they launched their customized piece rate compensation technique called “Sales Per Hour (SPH)” for the first time in the retail industry. Their plan was to motivate all the sale employees to think and act outside the box and earn tremendous customer satisfaction thus augmenting the sales.
Their intentions were good but they haven’t really anticipated the problems that they faced due to this idea, thus failed to create a system which was fool-proof and awarding for the employees. For example, the SPH system was set such that the employee with higher SPH gets compensation more than the one with lesser SPH. But it doesn’t account for the quality of work done in order to create that particular sale. What if a customer worked more hours to generate lesser dollar amount to satisfy the customer?
Does that mean that the sales clerk deserves less money than someone who does a less intense work to create more SPH? The fine line between selling time and non-selling time was not properly documented or practiced, which in a way brought the entire system down.
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Nordstrom’s management always were on a single loop learning process of reacting according to that particular situation and focused on the motivation aspect of the employees to enhance their sales but never concentrated in a double loop learning process of how things can be improved or what might go wrong with this idea etc.
If they had implemented the double loop learning and be more proactive in extrapolating the glitches of the system, they would never have ended in a position like the one the case mentions about. Nordstrom had used the expectancy theory of motivation for compensating their employees. When a sales clerk joined Nordstrom, he/she expected that they first will be valued and also will be compensated for their performance which is directly tied to rewards and reinforcements.
This system proved to be fatal for Nordstrom. One more problem with the system failing is the decentralized process created within Nordstrom which never allowed good supervision of the employees and the sales clerks from the managerial side. A decentralized system has advantages of increased creativity, better communication and more efficient environment but suffers from lack of co-ordination and supervision between different departments thus creating silos within the work environment.
This exactly was the case in Nordstrom where managers never realized the failure of the system and the issues of the sales clerks with the SPH system until it got nasty. Having said that, Nordstrom’s SPH system succeeded for a long time by motivating employees to give their hundred percent and generate more sales thus creating a name for themselves. Nordstrom’s culture also included punishment and reinforcement when the case mentioned that if an employee has lesser SPH, he/she served decreased hours or possibly was terminated.
This brings all the employees into a vulnerable state where they cannot deliver their best. It also creates an unhealthy competition among the employees and they work against each other rather than working together towards a common goal. All systems, not matter how big they are, fall at some point if not properly designed or implemented like a small crack in the wall can dilapidate the entire house. Alas, that was the case for Nordstrom.