Reference no: EM132272473

Target CEO Works to Regain Consumer Trust after the Company Was Hacked

Minneapolis-Executives settled around a square table inside a Target Corp. conference room here earlier this month and munched on store-brand snacks as they chewed over something far less appetizing.
Opinion surveys commissioned by the company found that the massive cybertheft that waylaid Target late [in 2013] had knocked confidence and trust in the 51-year-old retailer to an all-time low. . . .

Target was having trouble shaking the fallout from a key decision by Chief Executive Gregg Steinhafel that made the crisis appear even worse than it already was.

The initial evidence had indicated that credit and debit card numbers of about 40 million Target customers had been stolen. But the retailer had learned later that the hackers gained access to partial names and physical or e-mail addresses for as many as 70 million people-a breach that some top executives counseled against disclosing because it was unclear what kind of fraud danger it posed.

Nevertheless, Mr. Steinhafel insisted on making the bigger number public, sparking news reports that as many as 110 million Target customers had been affected.

At the meeting, Chief Marketing Officer Jeffrey Jones groused about the huge number. The public "keeps hearing that equals one-third of all Americans," he said. "That's hammering us."
Mr. Steinhafel says he has no regrets about the aggressive disclosure and other costly decisions in the wake of the crisis. "Target won't be defined by the breach, but how we handle the breach," he says. . . .

The executives acknowledge the crisis has damaged the retailer's bull's-eye brand, while analysts estimate it may cost Target billions of dollars. During the holiday-shopping season, Target's sales and store traffic plummeted. Call-center volume overwhelmed employees. Executives testified before congressional panels, and the company is facing federal and state investigations into how the cybercrime occurred from its store registers and computer network. . . .
Over the two months since the crisis erupted, Mr. Steinhafel, 59 years old, has lurched from one difficult decision to another.

At one point, he proposed in a meeting that Target would provide free credit monitoring and identity-theft insurance for one year to all its customers. Scott Kennedy, a senior executive, asked: "You're saying we will give this to any customer who's ever been in a store, but we aren't checking?"
Mr. Steinhafel nodded.

"Then we're offering this to all Americans," Mr. Kennedy replied.
Target went ahead with that plan.

The breach could wind up costing Target, which notched $73 billion in sales in 2012, a few billion dollars, people familiar with the matter say. . . .

New chip technology to replace magnetic strips on credit cards could cost about $100 million, one executive told Congress. Card-monitoring services for customers could cost tens of millions, according to one executive. Hundreds of millions of marketing dollars could be diverted to repairing the brand. In addition, costs are mounting for reissuing cards, staffing call centers, forensic and data-security units, and lawyers for public inquiries and private lawsuits. . . .

The CEO, who likes to say "retail is detail," is known internally for paying surprise visits to Target stores-there are about 1,800 in the U.S. that drew about 32 million customers a week before the crisis. Store managers say they warn each other to be alert for a man snooping around the aisles, frequently snacking from a box of animal crackers. . . .
Recently, Mr. Steinhafel says, he stopped a manager who was reading e-mail on her cellphone as she passed through Target's downtown Minneapolis headquarters. "Please be in the present," he recalls telling her. . . .

From November 27, the day before Thanksgiving, through December 18, Target executives say, shoppers' payment-card data was captured through "malware" installed in Target's computer network. The hackers had entered the network through a vendor. . . .

The breach got wide publicity. Shoppers clogged Target phone lines and stores. Some sent tweets and e-mails that they would never again shop at Target. On the last weekend before Christmas, the big crowds at Target stores had dwindled.
On December 20, Mr. Jones, the chief marketing officer, urged Mr. Steinhafel to appear in a video on Target's website. The CEO was reluctant. He didn't have a script and was exhausted.

With a camera rolling, Target's public-relations chief, Dustee Jenkins, asked him questions. Mr. Steinhafel, clad in Target's trademark red shirt and khakis store attire, thanked customers for their trust, provided tips to monitor their accounts, and promised zero liability to shoppers for any fraudulent charges.

Mr. Steinhafel began holding twice-daily "status meetings" in a 32nd floor conference room. . . .

Early this month, prompted by the Target data breach, Congress held hearings on cyberattacks. As Mr. Mulligan, the CFO, made his appearances, Mr. Steinhafel and his executive team watched from the company's "situation room."

Page 38A Secret Service official testified that the data breach was "highly technical and sophisticated," prompting Mr. Steinhafel to remark: "That shows it's not just our operation. It would be hard for any retailer to withstand this."

At a daily status meeting early this month, Mr. Steinhafel pushed to accelerate to early next year the timeline for Target to replace magnetic strips on its payment cards with a new chip technology widely used in Europe and Canada that is less vulnerable to fraud.

FOR DISCUSSION

1. From a management perspective, do you think Target made any major mistakes? Explain.

2. Which of the four principal managerial functions were exhibited by CEO Greg Steinhafel?

3. Which of the seven managerial challenges discussed in this chapter is Target facing? How are they handling these challenges?

4. What is your evaluation of Steinhafel's ability to effectively execute the three key managerial roles-interpersonal, informational, and decisional? Explain.

5. If you were a consultant to Target, what advice would you give to senior management about handling a crisis like this? Discuss.