Strategic HR management creates value at Target

JOURNAL OF ORGANIZATIONAL EXCELLENCE / Spring 2006Published online in Wiley InterScience (www.interscience.wiley.com) DOI: 10.1002/joe.20090© 2006 Wiley Periodicals, Inc.

STRATEGIC HR MANAGEMENTCREATES VALUE AT TARGET

COMPETITIVE STRATEGY

In the competitive jungles of discount retailing, Target consistently ranks amongthe fittest. Attributing its sustained high performance to the successful Targetbrand, the company has tapped every employee to be a brand manager. Four corestrategies of the HR function, which operates as a full business partner at Tar-get, have been keys to building and motivating a workforce that creates valuefor customers and stakeholders. © 2006 Wiley Periodicals, Inc.

Sunil J. Ramlall

Sunil J. Ramlall, Ph.D., is an assistant professor in the College of Business at the University of St. Thomas in Minneapolis, Minnesota. His pri-mary areas of research include the relationship between HR management and organizational performance, strategic HR planning and implemen-tation, HR metrics, the integration of IT in HR, international HR, and employee training and development. He can be reached at [email protected].

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Discount retailing is a fiercely competitive in-dustry rarely cited for its progressive human

resource practices. Indeed, a rash of negative pub-licity stemming from a class-action discrimina-tion suit and a variety of wage disputes at onemajor discounter has the public wondering if em-ployees are paying part of the costs of their em-ployers’ competitive strategies.

Discount retailers—Target, Wal-Mart, Sears,and others—face daunting challenges, as does theU.S. retail industry as a whole. A large number ofstores clamor for the attention of consumers at thesame time that a lukewarm economy and chang-ing demographics have slowed consumer spendingfrom the heights of the last decade. Consumershave adopted value as their hallmark, favoring re-tailers that offer the best price-value proposition.

The emergence of online retailing and its new busi-ness models—no stores and, in some cases, no in-ventory—is accelerating a transformation of theentire retail industry, and mergers and acquisitions(e.g., Kmart and Sears, Federated and May) con-tinue to shift the roster of major players. Modestexpectations for sales growth make cost cutting atop priority and put pressure on management totrim inventories and invest in productivity-boost-ing technology. Most recently, high energy costshave further squeezed operating margins.

Against the backdrop of structural changesand economic pressures, labor-intensive retailerscontend with thorny human resource issues. In anindustry with relatively low wages, they bear thechronic burden of a revolving door of hourly store-level employees. High turnover also exerts con-

JOURNAL OF ORGANIZATIONAL EXCELLENCE / Spring 2006 DOI: 10.1002/joe

58 Sunil J. Ramlall

tinual pressure to attract, retain, and develop asufficient stream of qualified new leaders at allmanagement levels. With rising health care costsand a high percentage of part-time employees,discount retailers face especially difficult ques-tions about what benefits to offer and how muchof the cost to absorb while trying to lower oper-ating expenses and raise employee productivityin a cautious business climate.

So it may come as a surprise to learn that onediscounter, Target Corporation, manages its work-force as a source of value creation to be optimized,rather than as a cost to be minimized. It is part ofa successful formula that has made Target thecountry’s third-largest discount retailer and a top-quartile performer among its competitors. Thecompany views all 273,000 Target employees askeepers of its unique brand experience for guests,and thus a source of competitive advantage.

This article briefly examines how Target’sHuman Resources function has translated thecompany’s competitive strategy into effective HRstrategies and programs, enabling the companyto build a high-performing stable workforce andmaking the HR organization a true strategic busi-ness partner in Target’s direction and consider-able success.

TARGET’S COMPETITIVE STRATEGY

In an industry where merchandise can be quitesimilar, stores are located in relatively equal prox-imity to customers, prices are comparable, andthe opportunity exists to purchase online from al-most all stores, how does Target differentiate itselfand its products from the competitors’?

Target positions itself as an upscale discounterwith a more affluent customer base than other dis-counters such as Wal-Mart and Kmart; its storeguests tend to have a median household income of$55,000 compared with $25,000 or less for cus-tomers of other discounters, are predominantlyfemale (90 percent), and are college-educated (75percent have attended or completed college). Tar-

The company’s employees are the “keepers” ofthe “Expect More. Pay Less.” brand through

all the services they provide. . .

get appeals to this customer base through a uniquebrand, “Expect More. Pay Less,” providing avalue-oriented shopping experience that elicitsexcitement, loyalty, devotion, passion, and fun.

The Target shopping experience distinguishesitself on four points:

• High-quality merchandise that guests wantand need most, stylish and practical at af-fordable prices, including exclusive brandsby well-known designers (e.g., MossimoGiannulli, Woolrich Home, Isaac Mizrahi,Michael Graves, Liz Lange, and Danskin)

• Fast, friendly service, including in-stockreliability, shorter wait lines, ever-speed-ier transactions, and payment options

• Clean, fun-to-shop stores with ambience,high housekeeping standards, regular re-models, and improved store formats forgreater convenience and a more pleasur-able shopping experience

• Knowledgeable employees, well trained,loyal, and enthusiastic, who are focusedon guests and share in the success of theirstores and their company

The company’s employees are the “keepers” ofthe “Expect More. Pay Less.” brand through all theservices they provide—from merchandising andmarketing to the store environment, guest ser-vices, systems, and distribution infrastructure. Thecompany’s value proposition and the speed withwhich new strategies deliver operating results aredependent on the company’s human assets andtheir capabilities.

STRATEGIC HR MANAGEMENT AT TARGET

Target’s philosophy is an example of the resource-based perspective of strategic human resourcemanagement (HRM), in which a firm’s collectivehuman resources are believed to have implica-tions for firm performance and provide a uniquesource of competitive advantage that is difficult toreplicate.1 Several studies draw a strong relation-ship between strategic HRM and a firm’s perfor-mance; for example, Becker and Huselid showedthat firms with the greatest intensity of HR prac-tices that reinforce performance have the highestmarket value per employee.2

Strategic HR Management Creates Value at Target

DOI: 10.1002/joe JOURNAL OF ORGANIZATIONAL EXCELLENCE / Spring 2006

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Understanding the potential of an organiza-tion’s human resources and optimizing the outputof those resources can provide the impetus for theHR function to become the key player in creatingthe competitive advantage for an organization.3

At Target, whose brand success rests on quality,excitement, service, and innovation—all drivenby the company’s people—HR strategies are thelever for building the sources of competitive ad-vantage and creating value.

The formal mission of Target’s HR organiza-tion is to “drive company performance by build-ing a fast, fun, and friendly team committed toexcellence.” To fulfill this mission, over the pastfour years the HR function has translated Target’scompetitive strategy into four core HR strategiesand processes in the following areas:

• Organizational culture• Staffing• Employee development• Employee retention

As shown in Exhibit 1, this focus serves as amodel for strategic human resources managementat Target.

ORGANIZATIONAL CULTURE

A fast, fun, and friendly culture makes the shop-ping experience at Target stores different fromthat of other discount retailers; it also distinguishesTarget’s brand as an employer. The HR functionworks to integrate the experience of fast, fun, andfriendly into every aspect of the Target work en-vironment, making it a great place to work andthus an inducement for high performers to jointhe organization, to stay, and to contribute at highlevels. Employees in turn are expected to create asatisfying experience for their coworkers andteammates as well as for guests: Decisions mustbe timely and efficient, resources efficiently uti-lized, and internal and external customers servedin a fast, friendly, and respectful manner.

An expectation of excellence is set in the ear-liest stages of an employee’s experience. Perfor-mance standards and reviews, compensation, andother HR management programs and processesare designed to reinforce high performancethroughout the employee’s career with Target.

Every employee and new hire must under-stand and believe in these values and reflect themin their on-the-job performance. These values andcultural characteristics also inform the other corestrategic HR management strategies at Target.

STAFFING

Developing and sustaining a workforce that cre-ates value for Target and its stakeholders hingesupon hiring people who have the right skills, astrong fit with the organizational culture, clearlyunderstand what is expected of them, and can cre-ate and sustain a high-performance work system.To achieve this, a two-pronged strategy drives Tar-get’s recruitment and selection processes:

• Hire quality over quantity• Fill open positions in a relatively short

time period

Recruiting Tools. Nearly 5.5 million resumeswere submitted to Target stores and the company’sWeb site in 2004—more than 1,500 potential ap-plicants per opening. A number of tools enablerecruiters to rapidly screen such a large applicantpool and select the best quality hires:

Exhibit 1. Strategic HR Management at TargetCorporation


60 Sunil J. Ramlall

• Clear definitions of the critical skillsneeded of each employee and position

• Consistent requirements across all locations• Selection criteria that include attitude, strong

cultural fit, and value congruence betweenthe job applicant and the organization

College Recruiting. College recruits compriseabout 10 percent of the company’s annual newhires, filling the talent pipeline for such criticalfunctions as merchandising, buying, finance, andbusiness analysis, as well as future leadershiproles. Target conducts an active campus recruitingprogram at the leading universities in the Mid-west and around the country to gain access to thebest new talent and expertise. Its college intern-ship programs in all functions and departmentsprovide invaluable experience to college studentswhile enabling the intern and the company to eval-uate the match for possible future employment.

Reflect Culture and Values. The recruitmentprocess embodies the characteristics of fast, fun,and friendly, conveying to applicants these im-portant aspects of Target’s culture and evaluatingtheir fit with it. The recruiting process also re-flects the company’s commitment to greater di-versity in its hires as a way to build and sustain aworkforce that fully understands and reflectsguests’ preferences and needs.

Plan Ahead of Needs. Target’s most effectivetactic for rapidly filling vacancies with highlyqualified individuals is to hire ahead of need—de-veloping bench strength at all levels of the or-ganization—so that the company is at no timeshort of the human capital necessary to meet andexceed guests’ and shareholders’ expectations.HR forecasts staffing needs by combining his-torical data—such as employee turnover by po-sition, month, department, and other factors—with the projected business outlook and thendeveloping hiring plans in anticipation of theseneeds. For example, business analysts are hiredand trained several months in advance of open-

ings, during which they learn the fundamentals ofthe job, Target’s culture, retail industry strategies,business acumen, and other competencies beforethey are assigned to a department; thus they “hitthe ground running” in the new assignment. Sim-ilarly, store team-leaders-in-training learn the nec-essary strategies to create value as a store leaderso that they can move quickly into the role oncean opening occurs. Although hiring and trainingahead of need may mean additional labor cost,this “preparedness” virtually eliminates any short-fall between staffing need and availability, en-abling the organization to maintain the highestlevel of productivity and guest service.

EMPLOYEE DEVELOPMENT

Target’s core employee development strategy isto embrace, model, and teach the concrete be-haviors that will lead to higher individual and sys-tem performance and to organizational excellence.The objectives are to help employees

• Perform at the highest level in their currentposition

• Manage internal and external environ-mental changes

• Increase their promotability within thecompany

• Contribute directly through all their out-puts to the overall strategic business ob-jectives of the organization

Core Behaviors. The core behaviors and ex-pected outcomes, the foundation of the employeedevelopment strategy, are defined for each positionin the company and serve as the criteria for eval-uating each employee’s current performance andresults. The consistent achievement of these ex-pectations will further the employee’s careergrowth at Target.

Linkage to Performance. In performancemanagement training sessions, HR facilitatorshelp participants develop a shared understandingof and belief in the core behaviors associated withstriving for excellence, getting results, and othercharacteristics of a high-performing organization.Participants learn to communicate the core be-haviors to their employees and use them in per-formance appraisals and feedback, thus giving all

Although hiring and training ahead of needmay mean additional labor cost, this

“preparedness” virtually eliminates anyshortfall between staffing need and availability

Strategic HR Management Creates Value at Target

DOI: 10.1002/joe JOURNAL OF ORGANIZATIONAL EXCELLENCE / Spring 2006

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The company’s reward system and its chan-nels for employee input and participation are im-portant mechanisms for demonstrating how thecompany values its employees, which contributesto their satisfaction and retention while fosteringorganizational effectiveness.

Paying for Performance. Core behaviors setexpectations for high levels of performance, andTarget’s compensation system strongly rewardsoutstanding performance, enabling the companyto retain high-performing employees and rein-force its performance-based culture. Perfor-mance-based pay includes management incen-tives tied to individual, team, and organizationperformance, as well as merit increases for high-performing employees. Regular reviews of ex-ternal levels of pay in its various labor marketsensure that Target offers competitive compensa-tion at or above the relevant market. HR alsoworks to continually improve the communica-tion of total compensation programs, includingcash compensation and benefits, so that em-ployees know and fully understand the rewardsystem and its links to performance.

Employee Input and Participation. Part ofemployees’ satisfaction with Target as a place towork relates to their ability to provide feedbackand input on matters relating to their work. HRhas implemented several mechanisms for regu-larly listening and responding to the “voice” ofemployees. Opinion surveys regularly garner em-ployee feedback; and managers analyze theirteam’s survey results and promptly share those re-sults with all employees. It is quite common for di-rectors and vice presidents to be present duringthese feedback sessions to answer questions fromemployees and share their thoughts on strategiesfor responding to issues raised. Target assures fol-low-through on annual employee opinion surveyfindings and the resulting action plans, and it isworking to develop measures to gauge the impacton business results.

Forums are another important mechanism forlistening and responding to employee input, partic-

employees a clear vision of what it takes to be ahigh performer at Target.

Bench Strength. One of the core responsibil-ities of every Target manager/team leader is toidentify and develop employees for future posi-tions. Each position must have a “backup” iden-tified, an employee to fill it in the event the in-cumbent is promoted or leaves. With employeesalready identified and fully trained for a new role,a vacancy can be filled quickly with little or nonotice. The new incumbent has a shortened or nolearning curve, the transition is timely and notdisruptive to guests and other employees, and theorganization can maintain or even improve pro-ductivity through the transition.

Succession Planning. Target’s successionplanning tool, developed and implemented by theHR Department, requires senior leaders to sys-tematically review leadership talent in the com-pany, with the goal of developing and retainingthe expertise needed to create and sustain com-petitive advantages. On multiple occasions dur-ing the year, Target’s managers and executives for-mally assess their employees’ potential for takingon larger jobs, determine their readiness for pro-motion, and devise developmental plans forpreparing them for advancement.

EMPLOYEE RETENTION

Employee retention is both a core HR strategy forbuilding a team committed to excellence and anoutcome of the other core strategies—organiza-tional culture, staffing, and employee development.The cumulative results of all these efforts have beenworkforce turnover rates drastically lower than re-tail industry norms. While it is quite common forretailers to experience 150–200 percent turnoverannually, in 2004 Target’s turnover rate was lessthan half the industry average. Furthermore, Targetretained almost all the high-potential employeesidentified in its succession planning process.

If asked why they have chosen to remain withthe company, employees will cite as key factors

• Target’s performance-based culture• Their feeling of being valued by the

company• Their satisfaction with Target as a place

to work

Employee retention is both a core HR strategyfor building a team committed to excellence

and an outcome of the other core strategies. . .


62 Sunil J. Ramlall

ularly the monthly chat sessions at each Target store,in which employees voice concerns, share thoughtsand ideas, and give feedback to others on topics thatrange from employee benefit plans to spotting trendsand resolving customer issues. Department and storeleaders, in collaboration with their employees, de-velop action plans to address the issues and ideasthat emerge in these forums, further demonstratingthat employee input matters at Target.

STRATEGIC HR MANAGEMENT PAYSDIVIDENDS

At a time when a retailer might be tempted to re-vert to compensation as the main tool for attract-ing and retaining high-performing employees—apractice that does not necessarily engender loy-alty—Target instead has taken the longer view: Itinvests in its people. It makes quality hires, cre-ates effective brand managers, nurtures an invit-ing high-performance culture, articulates and re-wards desired behaviors, provides developmentand advancement opportunities, and encouragesinput and ideas.

Over the past ten years, Target has

• Doubled its number of stores to more than1,400 in 47 states

• Roughly tripled its revenues to $47 billion(2004)

• More than quadrupled its pretax segmentprofit

• Delivered a nearly 18 percent increase inaverage annual earnings per share and a

total annualized return to shareholders ofabout 23 percent

• Outperformed other retail giants such asKmart and Sears with a better-than-aver-age earnings growth on one-year, five-year,and ten-year bases (see Exhibit 2) andtop-quartile earnings per share.4

Target’s operating philosophy—that employ-ees are the keepers of the brand, the means bywhich the company creates value for customersand other stakeholders—would seem to be payinghandsome dividends. And through its role in build-ing an effective, stable, and high-performing or-ganization committed to guest satisfaction, theHuman Resource function is demonstrating itsworth as a true strategic partner. ■

Exhibit 2. Compound Growth Rate in Net Income:Target vs. Retail Industry, 1994–2003

NOTES

1. P. Wright, G. McMahan, & A. McWilliams, Human resources and sustained competitive advantage: A resource-based perspective, International Journal of Human

Resource Management, 5 (1994), 301–26.

2. B. Becker & M. Huselid, High performance work systems and firm performance: A synthesis of research and managerial implications, Research in Personnel and

Human Resources Management, 16 (1998), 53–101.

3. S. Ramlall, Measuring human resource management’s effectiveness in improving performance, Human Resource Planning, 26 (2003), 51.

4. Asaeda, J. (2004). Industry surveys. New York: Standard & Poor’s.

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Strategic HR management creates value at Target