April 01, 2012

Dear Catalog CEOs: Accountability

Dear Catalog CEOs:

Working at Nordstrom was a humbling experience, if you were an Executive.  Each month, dashboards were created.  Each merchant was ranked, from top to bottom, based on the percentage sales increase vs. prior year.  Each regional manager was ranked, from top to bottom, based on the percentage sales increase vs. prior year.  Each store manager within a region was ranked, from top to bottom, based on the percentage sales increase vs. prior year.

Hint:  You didn't want to be on the bottom of that list.

First of all, Leadership only talked about the top of the list.  The Accessories Exec was lauded for generating a 10.9% sales increase vs. prior year, while the Womens Footwear Exec was praised for generating an 8.8% sales increase vs. prior year.  The Regional Manager responsible for the Midwest Region was recognized for generating an 11.3% sales increase vs. prior year.  The Alderwood Mall Store Manager was thanked for generating a 22.4% sales increase vs. prior year.  The message was clear ... rewards were available for those who exhibited outstanding performance.

You didn't hear wining, at least not publicly.  The Northern California Regional Manager didn't publicly complain that La Nina created a wet, cold environment that damaged sales.  The Cosmetics Exec didn't complain that a key vendor was struggling to ship enough product to meet demand.  No, people just got busy trying to improve, trying to move up the list.

At the end of the year, staffing changes happened.  In some ways, it was like a tournament, folks.  Those at the bottom of the list "retired" or simply were no longer with the company.  Empty positions were filled by those who were at the top of their list.

The criteria that folks were ultimately evaluated on was clear.  Your job was simple ... improve significantly vs. prior year.

The CFO was accountable for holding the line on expenses ... if expenses were held constant, while sales increased (on an assumed even or improved gross margin percentage), then profit skyrocketed.

Sales increases and profit improvements led to Wall St. approval, causing the stock price to increase from about $8 when I was hired to about $50 when I left.

The culture of accountability created by simple dashboards and clear Executive-level messaging led to a company that, at the time I left in 2007, was generating something like 13% pre-tax profit ... more than a billion dollars pre-tax profit on over eight billion in annual sales.

Our obsession with "channels" detracts us from true accountability.  We try to parse orders based on the channel that drove an order.  We know this is basically an impossible task, but we continue to focus on channels.  What did search deliver?  What did email deliver?  How did the holiday catalog perform?  Our merchants pummel the marketing team, telling marketing that they  don't advertise to the right audience.  Our creative folks pummel the merchants for selling crappy merchandise.  Our marketing team tries to gain favor by increasing the number of followers on Twitter.  We argue with the affiliate marketer on the share of sales they should receive.

Maybe we go back to simple accountability.  Hold the merchants responsible for sales by merchandising division.  Hold the CFO accountable for company expenses.  Hold the creative team accountable for landing pages that result in sales increases.  Hold the inventory manager accountable for inventory turn.  And for crying out loud, hold the CMO accountable for increases in sales and reduction in marketing expense via catalogs, emails, search, display, social media, you name it ... but in total, not by channel.  Hold somebody accountable for new customers.  Hold somebody accountable for your annual retention rate.

And publish everything, so that everybody knows what is driving success or failure.  Reward those who truly drive business success, publicly.