MANAGEMENT CONTROL SYSTEM PAPER ASSIGNMENT

Case Study Chapter 12

“Anita’s Apparel”

Lecturer:
Ayu Chairina Laksmi, SE., M.App.Com., M.Res., Ph.D, Ak., CA.

By:
Vega Agnitya Eka Pangesti
17312053

DEPARTMENT OF ACCOUNTING INTERNATIONAL PROGRAM

FACULTY OF ECONOMICS
UNIVERSITAS ISLAM INDONESIA
2020
COMPANY BACKGROUND

Anita Lamont is the founder and CEO of Anita's Apparel, a high-end business women's
clothing line. Lamont is pleased with the progress of his company but she is concerned about
the growing number of customer complaints and lower square foot sales compared to some of
her more well-known competitors.

When she only has one shop, she owns and operates, and can control most of the details of
her business. With the increase in the number and size of the stores alone, customer
complaints are getting higher and her sales per square foot are only $ 220 from the previous $
250. This is very concerning as her expansion plans for Anita’s apparel have been slowing
down as the shop is not producing the rate of return she is expecting.

During her visit to Seattle, Lamont had the opportunity to shop at Nordstrom and she was
very impressed by the level of service provided by a very cheerful and helpful sales clerk, in
stark contrast to the level of service that her sales clerk provided at Anita's Apparel store. So
then Lamont studied the Nordstrom business. She reads The Nordstrom Way by Robert
Spector and Patrick McCarthy.

Nordstrom was founded in 1901 as the Wallin & Nordstrom shoes shop by Carl F. Wallin
and Jhon W. Nordstrom. During 94 years of founding intervention, Nordstrom has become
the largest independently owned fashion specialty retailer in the United States, offering a
great variety of clothing, shoes and accessories. Nordstrom controlled a third of the southern
California market within 10 years.

Nordstrom has developed a number of specific systems designed to create a Nordstrom

customer service environment, including the implementation of reverse pyramid
management, commission systems, unconditional returns, rewards for employees,
recognition, and heroic actions.

But in November 1989, there was a massive protest from Nordstrom sales people in the
Seattle area who are members of the UFCW (United Food and Commercial Workers) union.
They filed complaints with the ESAC Department and the Washington State Department of
Labor and Industry regarding Nordstrom's policies that stress the workforce and compensate
for unacceptable hours of work. So it was decided that Nordstrom's business practices were
against the law.

When Anita Lamont considered what she had learned about Nordstrom, she focused on the
fact that even though she paid wages to employees by hourly work. However Anita Apparel
has few incentive plans for its sales clerks and a very strict return policy. In addition,
although there are many advantages of Nordstrom's approach to commission compensation
and salary intensive, it increases the costs and risks relatively large.

DISCUSSION QUESTIONS

1. How do you evaluate Nordstrom’s compensation and other systems in support of its
strategy?

Basically, commissions are one of the most effective ways to motivate people. After
reading the background, we can evaluate from Nordstrom's compensation that Nordstrom
was doing quite well in the field of commissions by then. The standard commission rate
in 1995 ranged from 6.75% for clothing to 13% for children's shoes. Nordstrom uses
10% commission for its employees. Nordstrom also rewards its best, friendliest and
fastest employees. Nordstrom has made commissions an arena for competition so its
employees are motivated to do their best. Then it can be seen from other supporting
systems, namely:
 Inverted pyramid management, make managers to motivate and provide advice to
his subordinates experience difficulty
 Commission, keeps employees motivated and which in turn will increase sales
and should be monitored on a daily commission basis
 Returns without conditions, making consumers feel problems in the goods
purchased can be returned by fast, although with this unconditional return
Nordstrom becomes legendary in its returns, but in our opinion this unconditional
return has a significant risk impact if there is one use it wrongly.
 Rewards, just like reward commissions will keep employees motivated
  Recognition, employees will be motivated when he gets swearing back from what
she's doing.
 Heroic, the noble attitude of employees as one way to bring employees closer to
their customers.

2. How would you advise Anita Lamont about compensating her employees?

Looking at Anita's Apparel case, to implement a policy like Nordstrom's, Lamont needs
to pay attention to several evaluations. For instance, providing recognition and
appreciation to employees who excel in accordance with sales volume, customer service
and service to colleagues. Then also providing compensation according to employee
performance that can exceed sales targets. However, in implementing this commission
system, it is also necessary to increase supervision so as to minimize any fraudulent acts
from employees that will harm the company or even other employees.

Regarding with many complaints from customers, company should be resolved by

improving the quality in terms of service and quality of products sold as well as
improving after-sales service. For example, the existence of a guarantee and acceptance
of appropriate returns. In terms of return policy, it should be slightly relaxed, and the
management should be changed to the best pyramid management. Furthermore,
management needs to improve training and disseminate programs to employees. In
addition, the existence of commissions and awards can encourage employees to provide
good service to consumers. Therefore, managers also need to provide examples and
continuous supervision in the field.