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Harvard Business School Professor, former Medtronic CEO

Target’s Leaders Follow The Playbook For Handling Crisis Well

Target CEO Gregg Steinhafel and his leadership team are experiencing every company’s worst nightmare. This problem is as bad as it can get. As a retailer, the loss of private customer data hurts consumer trust. The timing of the crisis—the biggest shopping month of the year—was doubly unfortunate.

Yet, in response, Steinhafel and his team seem to be doing everything right. Steinhafel is wise enough to know that the most important thing here is Target’s ability to maintain the confidence of its customers. Every decision he has made since the crisis began is based on that clear objective.  Steinhafel and his colleagues have been fully transparent with their “guests,” as they refer to customers. They have offered to reimburse them for any losses incurred. They have not only reissued their Target credit cards, but any other credit cards used in their stores, and paid for the cost of reissuing them.

The good news here, if there is any, is that the actual losses incurred by Target customers pale in comparison to the enormous number of accounts breeched. In part, this is because Target moved so quickly to cancel and reissue credit cards.

Steinhafel seems to be following the well-known playbook of the 1982 Tylenol crisis, when CEO Jim Burke distinguished himself with his openness, authenticity, and transparency. At the time, many so-called experts predicted that Tylenol could never recover. As a result of Burke’s aggressive actions to protect consumers, Tylenol quickly regained its leading position in the consumer market.

Some pundits have criticized Target for additional revelations that expanded the number of customers who may have been impacted. If you understand even a little about cyber-security, you know that you often don’t have all the information initially. Firms like British Petroleum have tried to buy time by withholding information until they knew the full story. This only made the situation worse and caused them to lose control over the public messages.

Target has gone in the opposite direction, providing all the information it had at its disposal as quickly as possible. The problem is that you don’t know what you don’t know. As its team of experts dug deeper into its computer files, Target learned additional information that it immediately shared with its customers and the media. Since the crisis broke, transparency has been the company’s motto.

In 2009 shortly after the peak of the global financial crisis, I wrote the book 7 Lessons for Leading in Crisis, which provides a framework for handling this type of urgent, important, highly visible situation.  I’ll use it to check in against how Steinhafel’s actions follow it:

  • Lesson #1:  Face Reality: Steinhafel immediately recognized the potential impact of the data theft on its customers and did everything within its power to inform them and protect them from further harm. While this hurt Target’s pre-Christmas sales, it may have salvaged trust  with its customers.
  • Lesson #2:  Use Your Teammates: Steinhafel has formed a strong working team of his top executives, his board, and external advisors—they are working actively and diligently together.
  • Lesson #3:  Dig Deep for the Root Cause: Supported by outside experts, Target’s information technology team has continued to dig deeper into its computer files, enabling it to get to the root cause of the problem. They still have not figured out who invaded their systems.  (And they may not; the terrorist who laced Tylenol capsules with cyanide was never identified.)
  • Lesson #4:  Get Ready for the Long Haul: Target’s leadership has recognized that this crisis won’t go away easily, so it has focused on restoring the confidence of its shoppers as well as the general public.
  • Lesson #5:  Never Waste a Good Crisis: Steinhafel recognizes that he can use this crisis to strengthen his ties to Target’s guests by being open and offering to reimburse them, whatever the cost.
  • Lesson #6:  You’re in the Spotlight: Follow True North: Throughout the crisis Steinhafel has maintained his integrity and his openness. He has been visible to his customers, including his appearance on CNBC on Monday, January 13.
  • Lesson #7:  Go on Offense, Focus on Winning Now: It’s too soon in the crisis to think about winning in the marketplace, as Target is currently trying to hold its position with customers after the December shortfall. Looking ahead, I have no doubt that Target management will attempt to turn its handling of this crisis into expanding its business with its customers. 

I have known Steinhafel for nearly twenty years. Between 1995 and 2005, I served on the Target board when he was Executive Vice President, Merchandising and later President. He has also been a participant in the courses we run at Harvard Business School for new CEOs. He is a person of absolute integrity. I have never seen him prevaricate or dissemble, even under extreme pressure. For him, everything revolves around satisfying his guests. He is a brilliant merchant, arguably the finest in the retail field. He can anticipate customer needs and fulfill them.

This isn’t the first crisis Steinhafel has faced as CEO. Shortly after taking over the reins from former CEO Bob Ulrich, he faced an aggressive attack from activist hedge fund manager Bill Ackman, who wanted to break up the actual company.  Ackman’s plan proposed spinning off Target’s credit cards and its real estate holdings—destroying the company’s integrated strategy of retail merchandising, credit cards that offered customers the opportunity to contribute 1% of their Target expenditures to their favorite K-12 school, and real estate tailored to its merchandising strategy. Target management and its board rejected Ackman’s demands and won a proxy fight with 80% of shareholder votes cast.

As an executive, you would never wish for a major crisis, but as I have learned in crises at Medtronic, Goldman Sachs and Exxon, they can make your company more effective and your organization more unified and committed to its True North in the long-run. Ultimately, I predict the same thing will happen at Target.