August 24, 2015
Kohl’s CIO lawsuit shows the power of IT in the enterprise
Through a special arrangement, what follows is an excerpt of an article from FierceRetail, an e-newsletter and website covering the latest retail technology news and analysis.
Never has the role of the CIO been more important to retailers. This is evidenced by the recent tussle between Kohl’s and its former CIO Janet Schalk.
Ms. Schalk announced she was leaving Kohl’s to join Hudson’s Bay Co. (HBC) and was promptly served a temporary restraining order to enforce a non-compete clause in her contract that barred her from working in a similar position with a retailer for a period of one year.
A judge denied Kohl’s request on Aug. 11. According to the Milwaukee Journal Sentinel, Waukesha County Circuit Court Judge Robert G. Mawdsley said the agreement was more restrictive than non-compete pacts of more senior Kohl’s managers, including the CEO. He also didn’t see the mid-tier department store operator and HBC, primarily in the luxury space, as competitors.
Kohl’s was given a week to appeal. HBC, the parent of Hudson’s Bay, Lord & Taylor, Saks Fifth Avenue and Saks Fifth Avenue OFF 5TH, announced she joined the company on Aug. 18.
While a non-compete clause is standard for retail executives, the importance that Kohl’s has placed on Ms. Schalk’s role within the organization serves to highlight the critical importance that IT now plays in retail.
"Armed with the knowledge gained during her employment at Kohl’s, Schalk poses a competitive threat far more dangerous to Kohl’s than other competitors who are not privy to the very private information to which Schalk was provided access," stated Kohl’s in a legal brief.
Source: kohlscareers.com
Under Ms. Schalk, Kohl’s completed a series of business changes designed to support more targeted planning, more fluid cross-channel fulfillment, and new mobile and e-commerce offerings.
"Kohl’s didn’t used to be viewed as an innovator, in terms of the technology that supports us, and that’s one of the things we’re aiming for," Ms. Schalk told FierceRetailIT in February. "We’ve put in enough foundational investments that we’ve now been able to be more innovative."
Ms. Schalk also had knowledge of future programs now in the works.
Since mobile and digital retail is such a focus for retailers today, the development and implementation of technology says as much about what that retailer plans to do as it does about its current capabilities. For example, Kohl’s has been busy integrating its popular Yes2You rewards program into its mobile app and developing a mobile wallet.
It’s not hard to imagine that much of the retailer’s fourth quarter holiday promotional planning is tightly tied to new digital features.
Kohl’s wasn’t able to enforce its non-compete clause, but it has certainly made a point about technology. There really is no more important component in retail today.
- Kohl’s CIO lawsuit shows the power of IT in the enterprise – FierceRetail
- Judge denies Kohl’s call to block chief information officer’s hiring at Hudson’s Bay – Milwaukee Business Journal
- Kohl’s loses effort to block key exec from moving to another retailer – Milwaukee Journal Sentinel
- Hudson’s Bay Company Appoints Janet Schalk as Chief Information Officer – Hudson’s Bay Company/Business Wire
Discussion Questions
Do you agree that there is no more important component in retail today than technology? Do you agree or disagree that C-level technology positions deserve a higher level of non-compete restrictions than similar positions in marketing, finance, etc.?
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Ian Percy
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There are several lessons from this story, including the role of non-competes in retail. The larger lesson, though, is that Kohl’s was willing to go on record to assert the importance of technology. One can only hope that this presages an increase in the IT budget there and at other retail companies.
No I don’t agree that there is no more important component in retail today than technology. We’ve seen a sense of this belief in our annual merchandising benchmarks and have railed against it on more than one occasion.
What about PRODUCT? Hello? Technology/science is the support structure that helps determine everything except what items to design and/or sell. For that we need a merchant and an artist’s eye.
I could add that store associates are ALSO very important, as the customer has voted that poor customer service is a real de-motivator.
But the point is, Kohl’s isn’t selling commodities like peas or potatoes. And it’s not going to make its fortune on basics like white blouses and underwear. What drove customers into Kohl’s was its cool private label (like Ralph Lauren’s Chaps and others), and its easy-to-shop store design.
Yes it was technologically innovative, but to call that the most important component is just wrong. If Kohl’s management really believes that, I don’t think it has a good future ahead of it.
Years ago I discovered that lawyers are not bound by non-compete clauses. As such, none of us should be bound by contractual clauses to leverage our expertise on our terms. I do support non-disclosures and I believe it would be unethical to share future plans and proprietary insights with a competitor.
We’ve been sharing and discussing the importance of technology at retail on RetailWire for years. There has been plenty of foreshadowing, free and valuable recommendations put forth over the years. Those retailers that paid attention and had the vision to address these issues are now beginning to reap the rewards of their innovative thinking and trust. Those that didn’t shouldn’t be able to hide behind legal rhetoric.
“You can choose a ready guide in some celestial voice
If you choose not to decide, you still have made a choice
You can choose from phantom fears and kindness that can kill
I will choose a path that’s clear
I will choose freewill” – Rush
I’m with Adrian’s comment that the key is “non-disclosure” not “non-compete.” That said, the whole thing is like trying to quarantine a cloud.
The debate about what’s most important goes nowhere, like trying to decide which of the five senses you think is most important. However it is hard not to see that the technological infrastructure of an organization is its life-blood. Whoever knows most about that holds a darn good hand in my opinion. Can an organization control and/or contain that knowledge? I’d say not, particularly if the one who has the knowledge is good at it. You’ll never know what was disclosed if anything was!
Only in a few circles is “knowledge management” talked about anymore. It used to be a hot topic and really that’s the topic here. The cruel reality is that key knowledge of your organization walks out the door with every employee turnover. That includes your retirees — if there are retirees in retail any more. Information, ideas, insights, inventions, innovations all held in the hearts and minds of people are the greatest untapped resource in every organization. If we don’t tap into them, someone else will.
As a consultant it is amazing how many “non-disclosure” documents I am asked to sign before I even have the first real conversation with a technology client. History tells us that defining and defending the intellectual property of technology is often the difference between making millions and being left behind in your garage with your laptop and regrets.
Accordingly, I definitely understand Kohl’s persistence in protecting what they deemed to be their technical intellectual property. Technical and digital techniques and programs are often the difference between close competitors.
Courts will vary on the efficacy of non-competes, in that some will recognize the potential damage to the former employer a well-seasoned IT leader can be if they jump ship. Other judges may side with the employee if they deem the language is too restrictive and hinders the person’s ability to make a living.
If I were writing the non-compete, I would make it as restrictive as I reasonably could, with the standard being set by past legal precedent. I would also be prepared to pay CIO and tech leaders a boat-load of money to keep them happy right where they are.
Being a technology person myself, I can’t believe I am going to say this out loud but…the secret sauce in retail is NOT what goes on in the back room. There is a reason that IT and the CIO have been described as keeping the lights on.
Yes, there is a lot more innovation required today, however, the innovation should be driven by how the brand plans to differentiate.
The basic operational systems behind the scenes are pretty much the same from one retailer to the next. Not to mention that many of them are actually the exact same vendor-bought products. It’s more important how each one is tweaked to deliver that particular brand experience that makes the difference.
Maybe Kohl’s tried an app that was successful. Is the same app going to work for HBC? I don’t think so.
But that’s just my 2 cents.
No amount of technology will fix crappy products or bad salespeople. But in an era of consistent product quality and role simplification/specialization, technology can create sustained competitive advantage. Which is why a great CIO is worth their weight in non-compete clauses.
This is why protecting tech IP is so important. A company’s ability to execute today is the result of thousands of prior decisions big and small, coordinated primarily by the CIO’s vision for the company. That’s a “secret sauce” that any other retailer will want, regardless of the price and risk. Smart retailers know there’s little legal protection, so they focus on retention of those responsible for the success. As long as the CEO realizes the CIO generates massive enterprise value, this won’t be an issue.
C-level technology positions are incredibly important in today’s environment, and I am shocked that a judge didn’t see the importance of the non-complete in this case. However, perhaps there should have been a “paid period,” i.e., the year she sits out, should have been with pay. That way there is less for a court to see as punitive.
Ms. Schalk signed a non-compete clause. She left willingly, and she and her new employer knew about the clause and anticipated dealing with the response.
I think the judge’s judgment shows that he/she doesn’t know about the upheavals in retail today, the crossing of all sorts of lines, and the tremendous dance competition in retail today using technology, the internet, omnichannels, whatever.
The point is that Ms. Schalk was privy to a ton of proprietary information and shouldn’t be allowed to blithely walk away and use that information with a new employer or anywhere else for that matter.
And, it seems obvious that all levels of executives should be held to the same standards these days as technology dependency and usage permeates the whole system.
Technology is only a tool. The important components in retail today still focus on delivering the products that consumers want, at the prices they will purchase these for (profitably), without incurring excessive inventory costs or out-of-stocks, while minimizing the promotional and incentive costs.