Proceedings of 27th International Business Research Conference
12 - 13 June 2014, Ryerson University, Toronto, Canada, ISBN: 978-1-922069-53-5
Nordstrom, Inc: Designing a Balanced Scorecardi
Catherine Finger-Podolsky1 and Suneel Udpa2
The case involves the designing of a Balanced Scorecard for Nordstrom
Inc., an upscale department store chain. The case provides a summary
of the company’s history and culture. The company’s financials and
management’s letter to the shareholders can be accessed through the
company’s website. The case requires students to develop critical
success factors, Key Performance Indicators (KPI) and Key Result
Indicators (KRI) for each of the four perspectives. In addition, the case
requires the creation of a strategy map. The case requires students to
understand the company’s strategy and culture and use their judgment in
determining appropriate metrics for the different perspectives.
1. Introduction
Paula Zhang had been pondering the task ahead of her. She had just come back from
her meeting with her boss, Michael Stead, Vice President of Merchandising, Nordstrom,
Inc. She had been entrusted with the task of making the first pass at designing a
Balanced Scorecard for the company.
Paula had graduated from the Professional MBA program at Saint Mary’s College of
California four years ago. While she was in the program she had taken a course titled
Managerial Accounting in which the professor had introduced the concept of Balanced
Scorecard. She remembered from the lecture that most companies use a crossdepartmental team to design and implement a Balanced Scorecard. She was surprised
that the Merchandising Division had been given sole charge and that she, instead of a
team, was given the responsibility of designing the Balanced Scorecard. After further
conversations with Michael, she had surmised it was for two reasons: One, the
merchandising division performed the most important function within Nordstrom and
two, the firm and her boss were in a hurry to get a draft scorecard ready for firm-wide
discussion and analysis.
Paula wondered if she was up to the challenge. She knew that designing a Balanced
Scorecard required a fair amount of subjective judgment and a fairly good knowledge of
the company and its culture. She had joined Nordstrom right after her graduation and
had four years of experience with the firm. Was this adequate? She felt the best way to
tackle the assignment was to gather all the information about Nordstrom and its culture.
1
Dr. Catherine Finger-Podolsky, Department of Accounting, Saint Mary’s College of California, USA. Email:
caf8@stmarys-ca.edu
2
Dr. Suneel Udpa, Department of Accounting, Saint Mary’s College of California, USA. Email: sudpa@stmarysca.edu. Corresponding author.
Proceedings of 27th International Business Research Conference
12 - 13 June 2014, Ryerson University, Toronto, Canada, ISBN: 978-1-922069-53-5
2. Industry Analysis:
Nordstrom belongs to the GICS industry classification – Department Stores (25503010).
Paula obtained the following general information about the department store segment
from Hoovers (2014).
Companies in this industry operate physical retail establishments that sell items such as
clothing, cosmetics, footwear, and home furnishings, typically from registers within
individual departments. Major companies include Dillard's, JCPenney, Nordstrom,
Macy's, and Sears (all based in the US), as well as Debenhams and Marks & Spencer
(UK), El Corte Ingles (Spain), Galeria Kaufhof (Germany), Galeries Lafayette (France),
and Tokyu Department (Japan).
Consumer spending and fashion trends drive demand. The profitability of individual
companies depends on effective merchandising and marketing. Large companies have
advantages in purchasing, distribution, and marketing. Small companies can compete
effectively by offering unique merchandise, providing superior customer service, or
delivering a distinctive store experience. The industry is highly concentrated: the top
eight companies generate about 95 percent of industry revenue.
Major products sold include apparel (about 55 percent of sales) and cosmetics,
footwear and appliances (8 percent, 7 percent, and 7 percent of sales, respectively).
Apparel includes women's, men's, and children's clothing. Cosmetics include makeup,
skin care, hair care, and fragrances. Appliances include refrigerators, stoves, washers,
dryers, and dishwashers. Companies may also sell kitchenware, bedding, towels, and
sheets. Services include gift wrapping, delivery, appliance installation, and personal
shopping.
Paula knew Nordstrom was a high-end retailer and she obtained the following excerpt
from Plunkett (2014) market research. Sales of luxury items have made a strong
comeback at many stores in America and Europe. Until 2013, luxury sales had been
surging in developing markets such as China, where high-end stores including Tiffany &
Co., Hermes and Gucci have done very well. However, new leadership in the Chinese
government is discouraging extravagance. Also, while it was once very common for
business people to present luxury gifts to officials, this practice has recently been
curtailed. However, overall, luxury retailers worldwide have been enjoying brisk
business.
3. About Nordstrom
Nordstrom, Inc. is a leading fashion specialty retailer offering compelling clothing, shoes
and accessories for men, women and children. They serve customers in 36 states with
117 full-line stores, 151 Nordstrom Rack locations and on Nordstrom.com. Additionally
they operate two Jeffrey boutiques, one clearance store and serve customers online in
44 countries. Their HauteLook business gives customers exclusive access to limitedtime sale events on top fashion brands. Nordstrom, Inc. (JWN) is publicly traded on the
NYSE.
Proceedings of 27th International Business Research Conference
12 - 13 June 2014, Ryerson University, Toronto, Canada, ISBN: 978-1-922069-53-5
Paula’s experience at Nordstrom had convinced her that Nordstrom’s history had
significant impact on its current culture. She decided to read about Nordstrom’s history
from the company’s website. What follows is her synopsis.
In 1887, 16-year-old John W. Nordstrom left his home in Sweden for the promise of
New York City. He arrived with $5 and not a word of English to his name. The first years
in the land of opportunity were hard. John labored in mines and logging camps while
crossing the country to the west coast of Washington. One morning in 1897, he saw a
newspaper headline: "Gold Found in the Klondike in Alaska"; he made the decision that
day to leave for Alaska. The very next day he bought his ticket. With the hard labor,
rough terrain and overabundance of eager workers, things were no easier there. John
persevered and within two years earned $13,000 from a gold-mine stake.
John returned to Seattle eager to invest his money. He reunited with Carl Wallin, a
friend from his Alaska days who owned a shoe-repair shop in downtown Seattle. In
1901, they opened Wallin & Nordstrom, a small downtown shoe store and the humble
beginning of what was to become Nordstrom, Inc.
From the start, John's approach to business was to provide exceptional service,
selection, quality and value. The idea resonated with a devoted customer base, and in
1923 the partners added a second store. In 1928, John retired and sold his share of the
company to his sons Everett and Elmer. Carl Wallin retired a year later and also sold his
share to the Nordstrom sons. John's third son, Lloyd, joined the team in 1933.
By 1960, the downtown Seattle shoe shop had become the largest shoe store in the
country, and the company, now with eight locations in Washington and Oregon, was the
largest independent shoe chain in the United States.
Looking for new ways to spread its wings, Nordstrom ventured into the women's
clothing market with the purchase of Seattle-based Best Apparel in 1963. With the
purchase of a Portland, Oregon, fashion retailer three years later, Nordstrom now
offered Northwest customers a selection of shoes and apparel under the new name
Nordstrom Best. Men's and children's wear were added in 1966; business prospered
and two new Washington stores followed soon after.
In 1968 the three Nordstrom brothers handed the company over to the third generation:
Everett's son Bruce, Elmer's sons James and John, Lloyd's son-in-law Jack, and family
friend Bob Bender.
Going public in 1971, the company was formally renamed Nordstrom, Inc. Two years
later, annual sales surpassed $100 million and the company was recognized as the
largest-volume fashion specialty store on the West Coast. In 1973, the first Nordstrom
Rack opened in Seattle as a clearance outlet for the full-line stores, and by 1975 the
company had expanded into Alaska. Three years later, Nordstrom entered the
competitive California market and by 1988 had opened its first East Coast store in
Virginia.
Proceedings of 27th International Business Research Conference
12 - 13 June 2014, Ryerson University, Toronto, Canada, ISBN: 978-1-922069-53-5
At the start of the new millennium, Nordstrom entered several strategic alliances. From
2000 to 2007, the company owned Façonnable, an upscale European apparel collection
for men and women. In 2005 the company purchased a majority interest in Jeffrey, two
luxury fashion boutiques in Atlanta and New York City's Meatpacking District. In 2011,
Nordstrom entered the online private sale market by acquiring Los Angeles-based
HauteLook, and also purchased minority stakes in kidswear brand Peek. In 2012,
Nordstrom became the only major U.S. retailer to sell a broad assortment from the
renowned British fashion brands Topshop and Topman. From 2011 to 2013, Nordstrom
operated an independent charity-concept store called treasaure&bond in Manhattan's
SoHo neighborhood. The boutique donated 100% of its profits to New York children's
charities.
Today, a fourth generation of the Nordstrom family, along with an executive team,
helms the company in partnership with a talented team of innovators and fashion
leaders. From one tiny shoe store, Nordstrom has grown into a fashion specialty chain
with global reach. It offers an unparalleled selection of shoes, clothing and accessories
and an extensive range of services to make shopping fun and convenient. In 2011, the
company achieved an all-time record for total net sales at $10.5 billion.
As noted earlier, Nordstrom currently operates a total of 271 stores located in 36 states,
with 117 full-line stores, 151 Nordstrom Racks, two Jeffrey boutiques and one clearance
store. Looking ahead, the company plans to open three new full-line stores in 2014,
followed by the opening of its first Manhattan store in 2018. Nordstrom expects to reach
a total of 230 Rack stores by 2016.
4. The Nordstrom Way
Four years ago, when Paula was getting ready to interview for the merchandising job at
Nordstrom, she had read the book, The Nordstrom Way, by Robert Spector and Patrick
McCarthy. It had not only helped her with her interview, but it helped later as well when
she was managing the merchandising business at Nordstrom. She thought she would
re-read an executive summary of the book (1999) with a view to gaining insight into the
culture at Nordstrom. It is reproduced below:
Nordstrom is the gold standard of customer service.
I.
The foundations of the Nordstrom model for delivering customer service are:
1. Empowered employees.
Many companies give lip service to this idea, but employees don't have real
authority to do anything too meaningful. Nordstrom is the exact opposite employees are fully and completely authorized to do whatever is required to
create satisfied customer.
Proceedings of 27th International Business Research Conference
12 - 13 June 2014, Ryerson University, Toronto, Canada, ISBN: 978-1-922069-53-5
2. Employees who act like business owners.
Since each employee has wide discretion to take the initiative, talking to an
employee is just like interacting with the owner of a small business. They can
take the initiative and act without impediments to create added value for the
customer.
3. A supportive management structure.
To create a fertile sales environment, the company carried full inventories,
with a wide and deep selection of sizes, materials and so on. That breadth of
selection represents the company's investment in customer service.
4. A mystique for heroic acts.
Nordstrom employees are idolized for delivering outstanding customer service
- for performing acts for customers that are "above and beyond the call of
duty". By idolizing exceptional acts of service, the company encourages
employees to go out and deliver the same exception degree of service.
To reinforce this foundation, new employees attend a one day orientation
course. They are given a gray card (which is the entire Nordstrom Employee
Handbook) which reads:
II.
Nordstrom Culture
Like other successful companies, Nordstrom has a strong internal company
culture and set of values. Key elements of Nordstrom’s culture include:
1. An inverted pyramid company structure.
At Nordstrom, everyone in the company works to support the sales staff.
Therefore, the company's organizational structure can be represented as:
Proceedings of 27th International Business Research Conference
12 - 13 June 2014, Ryerson University, Toronto, Canada, ISBN: 978-1-922069-53-5
2. An unconditional money-back guarantee.
Nordstrom's has an impressive return policy. Every sales person is authorized
to refund the purchase price, no questions asked - even if it is clear the
customer is being less than honest The Nordstrom philosophy is that it's
unfair to penalize the 98-percent of people who are honest just because 2percent of the people take advantage of the policy.
3. No barriers.
A person on the sales floor can sell merchandise from any department in the
store, which frees them to focus on meeting the needs of the customer, rather
than restricting them to just the department in which they are based.
4. Promote from within.
All managers at Nordstrom start on the sales floor, so they understand what
serving the customer entails firsthand. The company does not hire managers
from other companies - they have to start as sales associates.
5. Buying is decentralized.
Each region has a buyer who orders merchandise for just a small group of
stores. That gives them the flexibility to buy stock that reflects local lifestyles
and tastes. In addition, buyers are given advice by department managers and
sales associates - who have a shared feeling of ownership for their own
business unit.
III.
Creating a memorable shopping experience
1. Sphere of Influence.
Nordstrom believes in catering to customers’ needs even before they enter
the store. Nordstrom ensures there is adequate parking. Further, the
company also provides valet parking during busy sales times.
Proceedings of 27th International Business Research Conference
12 - 13 June 2014, Ryerson University, Toronto, Canada, ISBN: 978-1-922069-53-5
2. Convenience, ease and openness.
Nordstrom works on the concept that it has 15 seconds to get people
enthused when they enter the store. Therefore, the store layout features wide
aisles so people can circulate freely, and goods are arranged by lifestyle so
that entire wardrobes can be assembled quickly and conveniently -with the
assistance of sales associates who stay with them right through the entire
store.
Nordstrom stores are usually set out in a circular design, with the escalator at
the center. There are no dividing walls between the various departments, so
customers have an unobstructed view of the entire store. Every department
has warm and cozy furnishings making it a comfortable place to shop.
As a result, only about 50-percent of the total floor space is dedicated to
selling compared to about 70-percent in stores like Macy's. Offsetting that,
however, is the fact Nordstrom packs selling space with more inventory per
square foot than other retailers.
3. A focus on every aspect of customer comfort.
Nordstrom considers it is the attention to detail that adds value to the
consumer shopping experience. For example, in a Nordstrom footwear
department, there are plush upholstered sofas and chairs. The chairs are
custom made to withstand the wear and tear of everyday use. These chairs
have legs and arms that are a little taller than average - so that customers
won't have have difficulty getting up from the chair. That increases the
comfort level, and allows customers to focus on the shoes rather than the
seats.
4. Offering a variety of food and restaurant services.
This has come about in response to changing consumer tastes - more
consumers today are shopping with children or during lunchtime. By offering
people the opportunity to sit down, relax and have something to eat without
having to leave the store, the quality of the overall shopping experience is
magnified and enhanced.
IV.
Creating entrepreneurs
To encourage employees to think and act like entrepreneurs:
Proceedings of 27th International Business Research Conference
12 - 13 June 2014, Ryerson University, Toronto, Canada, ISBN: 978-1-922069-53-5
1. Hire nice rather than experienced people
The company hires nice people and teaches them to sell rather than trying to
retrain salespeople taught by other methods. Nordstrom believes the best
people have been trained by their parents while growing up.
2. Maximum flexibility.
The company has little in the way of formal sales training; employees have
the freedom to do whatever is appropriate in their own best judgment.
3. A minimum of operating rules.
Since the company does not have extensive operating guidelines or manuals,
sales associates are free to focus on creating a satisfied customer, instead of
worrying about whether or not they are inadvertently breaking one rule or
another.
4. High expectations.
Sales associates are judged solely on what they achieve - not on how well
they adhere to company guidelines. If sales associates don't meet
expectations, their employment is terminated. In that way, a natural selection
process occurs, where only the fittest survive and flourish.
5. Individual creativity is actively encouraged.
Sales associates are consistently encouraged to act like small business
owners, and to apply their creativity to everything they do. This sense of
shared ownership provides an opportunity for new and productive systems to
bubble to the surface - where any really good ideas can be communicated
throughout the entire organization. In this way, the best sales techniques are
constantly being integrated into the company's ongoing operations - enabling
Nordstrom to upgrade and improve its performance on an ongoing basis
V.
The Art of Selling
At Nordstrom, the sales process is considered to be high-contact, with
customers reacting to the sales associates. To optimize sales results, the
company has developed numerous tools and techniques, including:
1. Personal customer books.
In a loose leaf binder, sales associates list every customer's name, telephone
number, charge account number, sizes, personal preferences, previous
Proceedings of 27th International Business Research Conference
12 - 13 June 2014, Ryerson University, Toronto, Canada, ISBN: 978-1-922069-53-5
purchases, vendor preferences, likes and dislikes, special requirements and
other characteristics.
The binder also includes room for daily, weekly and monthly calendars, goal
lists, daily to-do lists and a phone directory for every department store in
every Nordstrom store in the country.
Sales associates organize their entire days around their personal customer
books - analyzing who may be in the market for new clothes, writing reminder
notes to clients and for generally keeping aware of their specific needs.
2. Telephone skills.
Every sales associate uses the telephone intensively to generate business
and improve productivity. It's not unusual for sales associates to make 40 or
more calls each day.
Associates use the phone to:
-
Tell past customers about new items they may like
-
Follow up on inquiries and other leads
-
Advise clients of items on special
-
Keep in touch for present needs
-
Strengthen the customer service relationship.
3. An emphasis on earning customer trust.
Many Nordstrom sales associates have such a strong ongoing association
with their clients they are frequently enlisted to make decisions on behalf of
those clients. This is the ultimate in customer service relationships, where the
customer views the sales associate as a valuable resource who fortunately
happens to be on someone else's payroll.
4. Thank you notes.
Nordstrom sales associates are famous for sending short, handwritten thankyou notes, thanking customers for their business. Again, this deceptively
simple practice is designed to communicate and reinforce one simple
message: that their customers are important and appreciated.
Proceedings of 27th International Business Research Conference
12 - 13 June 2014, Ryerson University, Toronto, Canada, ISBN: 978-1-922069-53-5
They also have numerous spin off benefits. Thanks you notes invariably lay
the foundation for further business transactions. Thank-you notes can also be
used to generate referrals and other business opportunities.
Due to the fact sales associates are paid on commission, all of them take a
long-term perspective of the customer relationship. In particular, most are
careful not to oversell on the first visit -since greater revenues will be
generated by repeat purchases
5. Nordstrom’s Financials
Paula further accessed Nordstrom’s financials using its most recent 10K filing
6. Case Questionsii:
1. What is Nordstrom's strategy for success in the marketplace?
2. Page 3 of the annual report summarizes six measures that Nordstrom collectively
refers to as its scorecard. Do these measures constitute a balanced scorecard? Why
or why not?
3. Identify at least two critical success factors, two KPIs and two KRIs (for each
Critical Success Factor) that Nordstrom could include in the financial perspective of
a balanced scorecard. Provide a rationale for your choices
4. Identify at least four critical success factors, two KPIs and two KRIs (for each
Critical Success Factor) that Nordstrom could include in the customer perspective of
a balanced scorecard. Provide a rationale for your choices
5. Identify at least two critical success factors, two KPIs and two KRIs (for each
Critical Success Factor) that Nordstrom could include in the internal business
process perspective of a balanced scorecard. Provide a rationale for your choices
6. Identify at least two critical success factors, two KPIs and two KRIs (for each
Critical Success Factor) that Nordstrom could include in the learning and growth
perspective of a balanced scorecard. Provide a rationale for your choices
7. Is there a need for a fifth perspective? For the fiflh perspective, identify at least
two critical success factors, two KPIs and two KRIs (for each Critical Success
Factor) that Nordstrom could include in this perspective of a balanced scorecard.
Provide a rationale for your choices
8. Create a strategy map that demonstrate the causal links
perspectives/Critical Success Factors/Measures that you have chosen.
between
Proceedings of 27th International Business Research Conference
12 - 13 June 2014, Ryerson University, Toronto, Canada, ISBN: 978-1-922069-53-5
References
Hoovers/Company Information/Industry Information website. Accessed May 2, 2014.
http://www.hoovers.com/industry-facts.department-stores.1529.html
Plunkett
Market
Research
website.
Accessed
May
2,
2014.
http://www.plunkettresearch.com/retailing-stores-market-research/industry-andbusiness-data
Spector, R and McCarthy, P 1999, “The Nordstrom Way” In Business Book Summaries,
www.ej4.com
End Notes
i
The case is based on real events, persons and firm, although the names of the
individuals have been changed to maintain confidentiality.
ii
Solutions to the case questions are available on request from corresponding author