Target offers breach blueprint for other retailers
In the competitive world of low-cost retailers, Target has led the pack. The leak of millions of customers’ personal data with implications of identity theft and fraud called into question their status as one of the top-retailers and has had their executives reeling. Although it's been months since the initial data breach, the crisis still isn't over. Target just reported less-than-stellar fourth quarter earnings, which were at least partly impacted by the breach, and the company still faces costs estimated at up to $1 billion as fallout from the data breach. The retail world has seen crises like these handled well, and handled poorly. While the dust hasn’t yet fully settled, Target has the potential to be one of the success stories. Their handling of the crisis to this point could very well create an opportunity for the company from this disaster. Clearly, there are lessons to be learned from Target’s conduct that apply to every retail leader facing a tumultuous period. In any crisis, when a company leverages strong leadership rather than distracting from or ignoring the problem, they can turn a negative into a positive, emerging even stronger than before. Target CEO Gregg Steinhafel has made many smart moves throughout this situation, and is showing some powerful leadership. To yield a positive result from a potentially disastrous situation, a crisis must be approached as an opportunity to improve the way your organization operates. When an event like this exposes policies and procedures that weren’t working, management typically focuses on who to blame. A crisis provides a chance to exercise true leadership by establishing a clean break from the past and communicating a clear message that the focus of the organization is now on leading the industry with the best solution to the greater problem. In the case of Target, going beyond the requisite reform of internal data protection policies, Steinhafel took the data breach as an opportunity to drive forward the chip-and-PIN debit and credit payment systems. The company had previously attempted to work with VISA to roll out a similar system in 2004, but the effort was derailed by cost concerns and a lack of perceived need from customers. Ironically, the data breach provided the push necessary to overcome internal resistance and develop this new technology to increase security for their customers. Before moving forward, Target had to regain consumer trust. In situations like this, a new vision needs to be clearly and consistently communicated by the organization and be understood and believed by everyone involved - employees of all levels, as well as partners and customers. Though initially somewhat slow to respond, Steinhafel and other senior leaders at Target eventually prioritized communications to customers and employees alike. Internally, announcements about the crisis were exhaustively rewritten to cut down on legalese and make them clear and direct. Steinhafel tripled the staff in call centers and provided clear scripts for customer service to ensure customers could reach the company and get answers with minimal delay. Externally, Target held daily news conferences during the holiday season to update consumers on the steps the company was taking to address the data breach. Ad spots scheduled to coincide with Olympic television coverage were canceled to avoid appearing as if the company were doing “business as usual” — which would appear false and disingenuous to consumers. One of the best steps Target has taken in handling the current crisis is to not shy away from culpability — they quickly took ownership of the problem. Steinhafel even went against the recommendations of his team to take responsibility for all compromised customer data, rather than only the portion for which there was a known identity theft or fraud risk. He followed up words with strong actions by offering to provide free credit monitoring and identity theft protection for all Target customers. By championing the chip-and-PIN payment system, Target is leading the way toward a solution for their customers’ future safety as well. Despite an estimated cost of upward of $100 million to outfit stores with the necessary technology to handle the new system, Steinhafel is positioning Target at the front of the retail pack in adopting stricter standards for customer data security. In the retail world, rebuilding consumer trust often takes a significant investment. The best leaders understand the opportunity cost — that loyalty isn't cheap and that big, costly moves often do more to re-establish trust than press conferences filled with apologies and explanations. Successfully weathering a crisis may take months, but there are indications that Target is already on the right track. The company’s stock price has not been hit as hard as many analysts predicted, and though the end of last year saw a decline in transactions, all indications are that sales are on track this year to match the first quarter of 2013. The biggest challenge on the horizon for Steinhafel and the Target leadership team will be to sustain momentum. The importance of not letting up, and continuing to build on the impact generated by this crisis, is what will empower the organization to continue to lead the industry in other areas as well. Kathy Gersch is an EVP with Kotter International, a leadership company focused on helping organizations manage change effectively and efficiently. Prior to Kotter, Gersch held senior roles with Drugstore.com, GiftCertificates.com, Nordstrom and Milliken and Company.