Styled Strategy

Ch. 12: Implementing Corporate Diversification

Organizational Structure

The most common organizational structure for implementing a corporate diversification strategy is the M-form, or multidivisional structure. In the M-form, each business area of the firm is managed through a division, but the names of those divisions may be different. Some common terms you may be more familiar with are companies, business groups, or strategic business units.

One of the major monitoring devices present in an M-form organization is the firm’s board of directors (“BOD”). A firm’s BOD usually consists of 10-15 members drawn from a firm’s top management group and from outside the firm. A firm’s senior executive officer, chief financial officer, and a few other senior executives usually sit on the board, but in most situations, the firm’s top executives are out numbered by other members outside of the firm. Depending on the structure of the firm, the senior executive officer might also be the chairman of the BOD. BODs are typically organized into several subcommittees to further evaluate different levels of the firm. Some of examples of those subcommittees might be: an audit committee, a finance committee, a nominating committee, and a personnel and compensation committee.

Nordstroms organization structure is as follows… Erik Nordstrom is CEO, and Brad Smith is Chairman of the Board of Directors. The BOD consists of the CEO, Mr. Chairman, and 10 additional directors. Aside from the BOD, Nordstrom then breaks out into two additional divisions: N-1 and N-2.

Sourcing from The Official Board, N-1 is made up of 7 additional officers and 7 Executives/Presidents:

Chief Executive Officer
Chief Financial Officer
President & Chief Brand Officer
COO
Chief HR Officer
Chief Merchandising Officer
Chief Product Officer
Chief Technology Officer
Executive VP and Chief Marketing Officer
Executive VP and President of the Nordstrom Stores
Executive VP and President: Nordstrom Product Group
Executive VP: Chief Supply Chain Officer
Executive VP General Counsel and Corporate Secretary
President: Nordstrom Rack,
President: Nordstromrack.com

N-2 is a further breakout of subgroups which tracks back to an N-1 superior and then to the CEO. I will list these subgroups as such: “N-2: N-1 superior”, to better illustrate the connection between divisions in the Nordstrom corporate structure. Please note that not every division of N-1 has a subgroup in N-2. N-2 is comprised of 8 subgroups:

Senior VP, Store Operations: CFO
VP, Tax & Treasury: CFO
SVP, Digital Operations: COO
VP, Digital Merchandising: COO
Executive VP and General Merchandise Manager, Cosmetics Division: CMO
Executive VP and General Merchandise Manager, Women’s Apparel: CMO
Executive VP and General Merchandise Manager of Shoe Division: CMO
Chief Information Security Officer and SVP, Technology of Infrastructure and Security Services: CTO
SVP, Technology: CTO
VP of Technology, Commerce: CTO
VP of User Experience: CTO
VP, Technology: CTO
SVP, Analytics: EVP, CMO
SVP of Supply Chain Operations: EVP, CSCO
VP, Brand Programs: President Nordstrom Rack
VP, Designer RTW & New Concepts

As you can see, Nordstrom seems to take the term “multidivisional structure” to a whole new level, although these individuals are only comprising roughly 3 divisions. It seems to be working well for the company though and that is the most important part of implementing corporate diversification since it can look different for everyone.

Source: https://www.theofficialboard.com/org-chart/nordstrom

Ch. 11: Diversification Strategies

Types of Corporate Diversification

The unique thing about Nordstrom is the way in which they view their own operations. It has been reported that the company views its operations in terms of full-line and off-price brands, rather than by offline or online channels, which emphasizes the importance of its brick-and-mortar stores for overall sales. The company takes the position that it is the combination of both their physical and digital assets that give Nordstrom its competitive advantage.

So for now, let’s turn to look at Nordstrom’s corporate diversification strategy. A firm implements a corporate diversification strategy when it brings in multiple businesses within its boundaries. Firms vary, though, in the extent to which they diversify the mix of businesses they pursue. Diversification strategies can range from what is known as limited corporate diversification to related, as well as unrelated strategies.

Related Corporate Diversification

A firm implements a strategy of related corporate diversification when a firm begins to engage in businesses in more than one market or industry and moves away from being a single-business or dominant-business firm. When a firm’s multiple lines of business are linked but revenues are no longer dominated by more than 70% of a single market, then the firm has implemented a corporate strategy of related diversification.

Nordstrom attributes a good deal of its success to investments in its retail proposition and diversification into off-price and the development of an omnichannel plan. Furthermore, Nordstrom’s own labels are one major factor in aiding customer retention because it allows customers to focus on uniqueness and differentiation which is so popular in the fashion industry anyway. This type of strategy implemented by Nordstrom is one known as “related constrained”. A related constrained diversification strategy is one where all markets in which a firm operates share a significant number of inputs, production technologies, distribution channels, similar customers, and so forth. Therefore, Nordstrom meets this definition of operating under a related constrained diversification strategy because its other businesses-Nordstrom Rack, HauteLook, TrunkClub and Jeffrey are all operating together and sharing the same production technologies, distribution channels, and similar customers that are loyal to the Nordstrom name.

Source: https://www.retaildive.com/news/nordstrom-stands-out-among-faltering-department-stores/449149/

Ch. 10: Vertical Integration Strategies

As we turn to Part III in our coverage of Nordstrom, Inc. and what sets it apart from other large fashion retailers, let’s remember what we’ve already discussed up to this point. In Part I, we talked about the overall logic of strategic analysis and got to know Nordstrom as a company. In Part II, we focused more on strategies that are unique to Nordstrom and how the company develops and maintains a competitive advantage. Now in Part III, we will be discussing a few different types of corporate strategies and how they affect the way Nordstrom does business. Here we go!

Vertical Integration and Sustained Competitive Advantage

For starters, the number of stages in a product’s or service’s value chain for which a particular firm engages defines that firm’s level of vertical integration. The greater this number, the more vertically integrated a firm is; the smaller this number the less vertically integrated they are. The number of stages in which a firm engages may change over time. Forward vertical integration takes place when a firm increases the number of value chain stages in which they engage and that increase brings them closer to direct interaction with a product’s or service’s ultimate customer, while backward vertical integration occurs when that same increase ultimately moves the firm farther away from that desired interaction.

It is very important for a firm to recognize the possibility that they way in which an exchange is governed can have a direct effect on the value that the exchange can create–that is, governance itself can be a source of economic value. However, in order to derive advantages from governance skills, the firm must be in a position to fully exploit those skills that are valuable, rare, and costly to imitate.

Nordstrom is vertically integrated because of its participation in multiple stages of the value chain. Nordstrom does not exclusively manufacture its own fabric, and therefore, it does not conduct all of its own activities within the boundaries of the firm. Nordstrom is more forward in its vertical integration because it participates in limited stages of the value chain such as retailing and after-sales services. These stages in the value chain place Nordstrom closer to direct interaction with a product’s ultimate customer. Nordstrom has positioned itself in a way that allows the company to be one of the last along the value chain to directly interact with its product before customers make their purchases in store.

Ch. 9: Tacit Collusion – Cooperation to Reduce Competition

The Problem of Cooperation

Patterns of choice represent decisions by players to compete, cooperate, or renege on a cooperative agreement. Insert the prisoner’s dilemma, but lucky for you, this isn’t a blog about economics so I’ll spare you the nitty gritty details of game strategy. However, it is still important to understand the types of strategy that come into play when analyzing cooperation.

If both players in a game choose strategy B over strategy A on all rounds, they are choosing to adopt a competitive strategy. Each time players choose strategy A, they are choosing to cooperate to maximize their payoff from the game. If players cooperate with each other on several rounds and then implement an end-game strategy, they are cheating on their cooperative agreement. Ultimately the payoff that one player obtains depends not just on that player’s decision but on decisions made by the other player as well.

General Solutions to the Problem of Cooperation

According to Thomas Hobbes, “cooperation develops only when a central authority (an individual or institution) forces other individuals or firms not to cheat on cooperative agreements.” So essentially, one firm acts as big brother to ensure that appropriate sanctions make the cost of cheating very high. Where big brother may seem a little harsh, another solution to the problems of cooperation lies within the realm of social norms. Some scholars have observed that most economic exchanges “occur within a context of social relations that have norms of expected behavior associated with them.” Therefore, society is essentially holding these stakeholders accountable for the way they choose to cooperate in business.

In the realm of cooperation at Nordstrom, the company has developed a very strict set of partnership guidelines. A deep dive into these guidelines reveals that Nordstrom utilizes a combination of the “big brother” tactic as well as conforming social norms to ensure that suppliers are acting in compliance with these guidelines. These guidelines touch on documentation and inspection, subcontracting, legal requirements, and health and safety as well as conflict minerals and animal welfare; therefore, Nordstrom retains a good deal of central authority over suppliers while also making it costly to suppliers in terms of expected social behavior and reputation should they fall out of compliance with these partnership guidelines.

Ch. 8: Flexibility – Real Options Analysis Under Risk and Uncertainty

Defining Flexibility and Options

Face masks but make it fashion, right? I mean who would’ve ever thought we would live in a world where runway models are sporting personal protective equipment. As it turns out, surgical face masks are no longer just for nurses and doctors.

In the midst of the historical COVID-19 pandemic, safer-at-home orders and other federal government regulations forced a shutdown of Nordstrom stores all across the United States and Canada. But in the face of risk and uncertainty, choices made by a company in response can either make or break their future for success. Whether or not a company has the resources to be flexible can also play a large part in a company’s reaction to times of risk and uncertainty.

Types of Flexibility

The flexibility of a firm can take make forms. We will discuss briefly some of the most important types of flexibility that a firm can possess and what type of flexibility Nordstrom has implemented during these uncertain times. Types of flexibility include the option to defer, to grow, to contract, to shut down and restart, to abandon, and to expand. Nordstrom’s response included the opportunity to expand. The option to expand provides a firm with choices that enhances its ability to expand its strategy beyond its current boundaries.

Even though stores across the U.S. and Canada were closed, Nordstrom utilized its workforce of seamstresses (the largest in the North America) to contribute to the public health crisis by partnering with Kaas Tailored and having their alterations teams in Washington, Texas, Oregon, and California sew more than 100,000 face masks to be distributed to Providence Health & Services. Furthermore, Nordstrom has also continued to support partners like Seattle Foundation, YouthCare, and Hetrix-Martin Institute to assist in combatting hunger, homelessness, and other serious impacts to local communities.

While this may not be what you think of in terms of traditional strategic expansion of a firm, whether it be financially or not, this type of expansion through community partnership in response to a global health crisis demonstrates Nordstrom’s commitment to its customers whether it be inside the store or outside in the community which in turn will create valuable goodwill for the company as a whole.

Ch. 7: Product Differentiation

Defining Product Differentiation

Our Chapter 7 discussion will cover product differentiation and how it can set a company apart. For Nordstrom, product differentiation is critical to the brand’s image. But what is it exactly?

Product differentiation is defined as a business strategy whereby firms attempt to gain a competitive advantage by increasing the willingness of customers to pay for the products or services they sell. Attempts to increase this willingness to pay are often made by altering the objective properties of those products and services. Additionally there is a wide variety of ways that a firm can attempt to differentiate themselves from other company’s in the industry. These different ways are known as the bases of product differentiation and their purpose is to create the perception that a firm’s products or services are unusually valuable.

Nordstrom focuses directly on relationships between itself and its customers and links between itself and other firms. Further exploring these unique relationships, Nordstrom takes things a step further by focusing on product customization, consumer marketing, and product reputation. Nordstrom is well-known for having its own brand of designer clothing such as Zella and Treasure & Bond, but it also serves as a one-stop shop for people seeking high-end fashion from a wide variety of brands under one roof. If you’re shopping for a pair of Gucci slides to hit the beach, but also need a new pair of amazing Chloe espadrille wedges for a sunset dinner after a long day by the water, you shop at Nordstrom. Oh, and you need to re-stock on make up before your big trip, stop by the beauty counter, too.

Additionally, Nordstrom takes the cake for sustained competitive advantage in product differentiation on the bases of consumer marketing and product reputation. Have you ever gotten on instagram at any point in time during the last two weeks of the month of July? If so, you’ve probably heard about it, seen an ad for it, or maybe even shopped it yourself. What is “it”? The Nordstrom Anniversary Sale.

Nordstrom has totally capitalized on the idea of influencer marketing by establishing an amazing product and brand reputation with famous instagram influencers who have the ability to reach thousands of people at one time at any moment of the day. You’d think its the Super Bowl of the fashion industry… But hey, they’re doing something right. Up until last year, I had never even heard of such a thing as the Nordstrom Anniversary Sale, but the power of social media and consumer marketing took me by storm when I started following a few of my favorite bloggers on instagram. The next thing I know EVERYONE is talking about it.

Lastly, Nordstrom really capitalizes on its ability to attract customers through this amazing sale where hundreds of high-end brands are marked down to nearly a steal. This creates the foundation for that relationship that is so critical to Nordstrom’s competitive advantage for product differentiation. But even after the fact, Nordstrom does an amazing job at maintaining these relationships by continuing to offer periodic sales on its most popular items. Using influencers allows Nordstrom to take full advantage of the benefits that come with trusted product reputation without having to work too hard to “sell” the products that they carry. In the influencer world, if Dede says that Steve Madden’s new summer sandals are the most comfortable pair of sandals she owns, or that the new Rachel Parcell floral pretty dress would make the perfect choice for a summer bridal shower, all of her followers will most certainly take her word for it, and Nordstrom didn’t even spend one pretty penny on that nearly invaluable asset that is consumer marketing.

Ch. 6: Cost Leadership

It’s finally time for the first post of Part II as we continue to study Nordstrom, Inc. and what sets it a part from other companies in the retail industry. In Part II, our studies of Nordstrom will shift from the logic of strategic analysis as studied in Part I to a more precise focus on their unique strategies as a business. Let’s get started!

The Economic Value of Cost Leadership

First up for our Part II discussion is the topic of cost leadership. Cost leadership is considered to be so important in the literature of business strategy that is, along side product differentiation, often referred to as a generic business strategy. Cost leadership refers to the strategy of a firm who chooses to focus on gaining advantages in the market by reducing its economic costs below those of its other competitors; however, this does not mean that the firm has abandoned other business or corporate strategies by choosing to make effective use of cost leadership.

Cost Leadership and Environmental Threats

It is helpful to estimate the economic value of cost leadership by strategically analyzing its effect on the business relative to the models of environmental threats and opportunities. Cost leadership has the potential to greatly reduce the threat of new entrants and the threat of rivalry and substitutes, as well as the threat of buyers and suppliers. Now that we have laid a little foundation, let’s take a look at Nordstrom’s cost leadership strategy as it relates to these potential environmental threats.

Cost Leadership and The Threat of Entry. Firms who are cost leaders are able to reduce the threat of new entrants by creating cost-barriers to entry for firms wishing to enter the market. Nordstrom is able to create this barrier by focusing on its targeted market of middle class individuals. This target market of middle class individuals forces Nordstrom to keep costs low in order to remain committed to affordable and accessible clothing. Creating this cost-barrier to entry also keeps Nordstrom accountable for maintaining high-brand awareness and competitive advantage.

Cost Leadership and The Threat of Rivalry and Substitutes. Cost leadership can be very valuable to a firm when it comes to preventing its competition from entering a new market segment. As for Nordstrom, this strategy has been extremely effective with the expansion of Nordstrom Rack. Nordstrom is able to operate as a low-cost firm through its operations at Nordstrom Rack where prices are set slightly below the prices of higher-cost rivals. As such, Nordstrom Rack has the potential to appeal to customers who are more price-conscious and thus rapidly increase their market share as a result of being a low-cost leader.

Additionally, substitutes act as a threat to a firm when their cost and performance become more attractive to customers. Nordstrom has uniquely positioned itself to act as a barrier to threats of substitutes due to its variety of strategic brand partnerships and product offerings. Thanks to its diverse inventory and cost-sharing abilities, Nordstrom is able to keep their products and services attractive relative to substitutes.

Cost Leadership and The Threat of Buyers and Suppliers. Cost leadership can also reduce the threat of buyers because lower prices threaten firm revenue. These firms are able to absorb greater costs as needed for increased quality while still maintaining a cost advantage over the competition. Furthermore, suppliers can also become a threat to a firm by charging higher prices and/or reducing the quality of the goods they supply. Where firms are faced with these threats, a cost leader will be able to reduce the impact of these threats due to their increased flexibility in absorbing higher-cost supplies while still earning a profit.

Nordstrom is able to minimize these threats imposed by buyers and suppliers by maximizing supply chain efficiency. Threats of rivals and substitutes are also well-defended by keeping prices below those of competitors while keep product offerings unique and intriguing to target markets. The threat of entry is then further reduced by sustaining brand awareness and maintaining a competitive advantage. This combination of valuable cost leadership strategy and product differentiation has enabled Nordstrom, Inc. to experience and achieve intense growth.

Source: Butler, A. (2018, January 10). Nordstrom Generic and Intensive Growth Strategies. Retrieved February 24, 2020, from https://www.essay48.com/12804-Nordstrom-Porters-Generic-Strategies

Ch. 5: Evaluating Firm Strengths and Weaknesses – The Resource-Based View

Applying the VRIO Framework

“Character. Intelligence. Strength. Style. That makes beauty.”
– Diane Von Furstenberg

Before we get into the nitty gritty, VRIO stands for (V)alues, (R)arity, (I)mitability, and (O)rganization. These four ideas are often brought together and analyzed under a single framework to better understand the return potential associated with exploiting any of a firm’s resources or capabilities. This framework can then be translated into determining whether a firm’s resources or capabilities serve as strengths or weaknesses. Each of these ideas — value, rarity, imitability, and organization — must be analyzed in comparison to one another to determine whether a resource or capability serves the firm as a strength or weakness.

Applying the ideas of the VRIO framework to those resources and capabilities possessed by Nordstrom might look a little something like this…

The Relationship between the VRIO Framework and Organizational Strengths and Weakness at Nordstrom, Inc.

Is the resource or capability…	Valuable?	Rare?	Costly to Imitate?	Exploited by the Organization?
EFFECTIVE PRODUCT INNOVATION	YES
STRONG CAPABILITY FOR EXPANDED MULTINATIONAL RETAIL OPERATIONS	YES	YES	YES
STRONG CAPABILITY FOR DIVERSIFIED ONLINE AND OFFLINE OPERATIONS	YES	YES	YES
STRONG BRAND VALUE	YES	YES	YES	YES

Brown, C. (2019, November 21). Nordstrom VRIO/VRIN Analysis & Value Chain Analysis (Resource-Based View). Retrieved February 21, 2020, from https://www.rancord.org/nordstrom-vrio-vrin-analysis-value-chain-analysis-resource-based-view

Further analysis of the chart above would lead Nordstrom to determine which resources and/or capabilities serve the firm as either a strength or weakness. Capabilities that are valuable but not rare serve the firm as a strength. Therefore, Nordstrom’s ability to effectively innovate their own clothing brands is one of its strengths. On the other hand, Nordstrom has some work to do in the framework area of ‘exploited by the organization’ because that means there are resources and/or capabilities that could serve the firm as a competitive advantage if the firm would exploit them. Here, Nordstrom has a very strong and very diversified presence in the retail industry both online and offline, as well as a strong ability to expand their operations at a multinational level.

Nonetheless, I would say progress is being made because full-line operations have expanded beyond the U.S. into Canada and Puerto Rico. Nordstrom is also exploiting both online and offline operations with the launch of “See You Tomorrow” which is the company’s latest recommence initiative. See You Tomorrow offers customers a resale experience both online and in-store at the company’s flagship location in New York City. Nordstrom is doing well overall by taking initiative, as it did with See You Tomorrow, to exploit its resources and capabilities that provide strength and competitive advantage in the retail industry.

Ch. 4: Evaluating Environmental Opportunities

Strategic Groups Analysis of Environmental Threats and Opportunities

Identifying groups in an industry can significantly improve the quality of analysis when determining what threats and opportunities a firm might face when those groups are strategic, real, and meaningful. A strategic group is a set of firms that face similar threats and opportunities that are different from the threats and opportunities facing other firms in an industry. The most important concept when analyzing strategic groups is one known as a mobility barrier–a concept analogous to barriers of entry at the industry level. think of strategic groups as similar firms in a given industry that share common threats and opportunities working together to better analyze what they are up against rather than trying to do some on an individual basis. For Nordstrom, Inc., the strategic group of which they are apart of might include other firms like Saks Fifth Ave and Macy’s, and their idea of strategic group analysis might look a little something like this…

Applying the Strategic Groups Concept

The first step in this type of analysis as described in the textbook is to isolate several key mobility barriers that might be operating in an industry. Let’s consider economies of scale and product differentiation. Then you must measure the conduct of firms in the industry with respect to these mobility barriers.

Economies of Scale: Nordstrom and the other firms in this strategic group are able to offset the firm’s costs of production while still providing customers with a large volume of product because the firm’s have fewer private label brands of their own and rely more heavily on selling products manufactured by the brands that they partner with. Brands like Calvin Klein, Gucci, and Free People are responsible for absorbing their own costs of production while Nordstrom keeps costs low by simply choosing to sell those brands in their stores.

Product Differentiation: On the other hand, Nordstrom is able to provide very diverse product differentiation for their customers due to the ability to create economies of scale. Firms in this strategic group offer a vast array of brand selections to their customers, but keep in mind, these firms may not offer the same brands which allow them all to succeed within the over-arching industry.

This concept of strategic groups analysis of environmental threats and opportunities is valuable to firms when studying the evolution of competition over time. Studying the competition allows firms to make strategic choices for the future about whether or not to expand into new markets, establish new partnerships, or create a new product that might be outside of their traditional brand.

Ch. 3: Evaluating Environmental Threats

Another Industry Force: Complementors

“Your wardrobe should complement your skill set, never detract – or distract – from your assets.”
– Nina Garcia

Professors Adam Brandenburger and Barry Nalebuff consider one firm to be a “complementor” of another firm if your customers value your products more when they have this other firm’s product than when they have your product alone. So, how does this idea of complementors translate to the fashion industry–one that seems to be fiercely saturated with competitors instead? For Nordstrom, Inc., the answer to this question lies in the value of diversification and extraordinary partnerships.

It was all about “the very best service, selection, quality, and value” for Mr. John W. Nordstrom, Founder, who believed that success was sure to come when he entered into his very first partnership with a Seattle shoemaker named Carl F. Wallin. The two opened their very first store in 1901. The partners continued to grow the brand by opening a second store in 1923 and eventually passed the company over to their sons who were responsible for managing eight locations and expanding into the women’s clothing market by the 60s, with the third generation of Nordstroms further expanding the brand all across the U.S. for the next three decades.

At the turn of the millennium in early 2000 after building the brand for nearly 100 years, Nordstrom, Inc. entered into a number of strategic partnerships. The company first owned an upscale European men’s and women’s collection from 2000 to 2007 and then acquired HauteLook in 2011. Nordstrom then began offering personal styling services to customers when the company acquired Trunk Club in 2014, and it launched its own private label Treasure & Bond in the same year.

I think its safe to say that anyone who continues to shop at Nordstrom does so because of its wide selection of styles and other unique items offered to customers at an affordable price. For me, its all about the brand collaborations which make shopping at Nordstrom a one-stop shop. Need a new work bag for that dream job you just landed? Kate Spade or Tory Burch can be found at Nordstrom for a fraction of their retail cost. Looking to update your wardrobe with a power suit and heels for your big presentation next week? Nordstrom has you covered with brands like Madewell and Steve Madden. Oh, and don’t forget your lipstick so you’ll feel confident and well put together in front your bosses and the executive team! Grab the newest shades from MAC or Charlotte Tilbury before you checkout.

See, that’s the thing about Nordstrom… They are utilizing partnerships with popular brands ranging from Designer handbags, men’s and women’s fashion, shoes, and beauty to complement the Nordstrom name. As argued in the textbook, “an important difference between complementors and competitors is that a firm’s complementors help increase the size of a firm’s market, while a firm’s competitors divide this market among a set of firms.” Whereas if these brands opened their own store fronts in every city where there is a Nordstrom or Nordstrom Rack, the they would be fiercely at odds with each other over gaining and retaining customers, but complementing each other allows both companies to flourish more efficiently. Nordstrom promotes exposure to these brands and helps to develop customer loyalty while these brands also provide value to the Nordstrom name by making it a place of the very best service, selection, quality, and value!