Fundamentals of Human Resource Management 5th Edition by Raymond Noe, John Hollenbeck, Barry Gerhart, Patrick Wright

Exercise 6

Are Employees Golden at Gilt Groupe?
Fashion lovers who also love a great deal are the intended customers of Gilt Groupe. The company runs a flash sales website-an online store offering steep discounts through limited-time sales events. Customers receive e-mail announcements about the day's special deals. When the limited inventory for that deal is gone, the sale ends. The concept of flash sales took off in the late 2000s, when a sudden economic downturn left top-brand companies with huge unsold inventories. Websites like Gilt, HauteLook, and Rue La La formed to offer irresistible deals on prestigious brands, and Gilt soon became the leader in this domain. By one recent count, the company employed 850 people, and the site had registered 3.5 million members.
With several competitors starting at the same time, why did Gilt Groupe take the lead? Gilt's chief executive officer, Kevin Ryan, credits the company's "human talent." He observes that while many companies call their workforce their most important asset, Gilt puts that belief into action. The most important evidence he notes is that he, as the CEO, is personally involved with talent management daily, working directly with the head of human resource management, Melanie Hughes. Ryan has said that getting good people onboard is the most important thing for an organization's CEO to do.
Ryan demonstrates his interest in human resources by making talent a regular topic of conversation, knowing that employees will focus on what their chief cares about. At meetings with his managers, Ryan routinely asks each manager about the employees reporting to him or her. He wants to know how these employees are performing and which have potential to advance-and he wants the managers to be constantly thinking about their talent as well.
If a manager is having difficulties with an employee, Ryan wants to know so he can help resolve the situation. He believes managers tend to avoid asking underperformers to leave, and this limits them from hiring the best talent to fill vacancies. In Ryan's view, it is more honest-and, thus, fairer-to tell employees when they fail to live up to expectations. Conversely, a manager who does not build a team of high performers will not remain on the payroll for long. Ryan will allocate whatever resources are needed to find and hire great people; Gilt has 10 full-time recruiters, a lot for a company of its size, to be on a continual hunt for new talent. And when managers are hiring for a key position, Ryan is available to speak with candidates himself. However, if a manager cannot keep good people in his or her group, the high turnover signals that the manager is leading poorly.
This commitment to talent management helped Gilt grow rapidly when flash sales sites were the hot trend. But tactics that supported the company's expansion are now being tested by turbulent times. Manufacturers of high-fashion merchandise adjusted to the economic slowdown by trimming inventories, and the growth of flash sales has resulted in more competition to buy a limited amount of goods. Compounding the challenge for companies like Gilt, the recent recovery has enabled high-end shoppers to start buying again at full price. Sites like Gilt can no longer find as much top-tier merchandise, and what they can buy is no longer as steeply discounted. Consequently, the online deals have lost some of their sparkle. Industry analysts say Gilt has yet to turn a profit.
Gilt has tackled the challenge by expanding its offerings beyond fashion apparel to travel, home décor, food, and wine. It also pressed forward with plans to expand into 90 countries beyond the United States. Nevertheless, to achieve profitability, the company recently announced layoff of about 10% of its employees. Two of the layoffs were top managers-John Auerbach, who headed the men's apparel site, and Nathan Richardson, who headed Gilt City, which offers deals tied to the customer's location. According to CEO Ryan, these two managers had talents better suited to running a start-up. The company also announced it would close regional offices in Seattle, Dallas, Atlanta, San Diego, Houston, and Philadelphia.
What is your opinion of Ryan's heavy involvement in talent management at Gilt? What do you think it would be like to work directly with him as the HR director?