Make no mistake—Target is in full transformation mode. Like other successful legacy companies, Target is confronting daunting threats to its future. Poor operating results over the past two years as a result of its 2013 data breach, unsuccessful expansion into Canada, and loss of fashion focus have made its current business model unsustainable. Coupled with challenges from traditional and non-traditional competitors in the online and grocery businesses, an aggressive response is necessary.

Confronting these challenges requires a multi-staged approach:

• Shrink to grow – To fund the transformation and improve financial results, Cornell made the difficult decision to exit Canada. Reducing complexity by downsizing the corporate office staff will provide resources for investments in future strategy and also make Target more nimble. Obviously, layoffs are painful and regrettable for any organization. However, a sense of relief and new possibility may also emerge at Target as financial results start to improve.

• Redesign the operating and business models – While brick and mortar will remain central to Target’s strategy, it is also clear that growing online revenue will be key to Target’s future growth strategy. According to the New York Times, Target plans to make changes in grocery and return to its cheap-chic fashion focus. Cornell and his team have chosen to reduce the number of priorities for the organization as a way to improve its ability to execute. Nothing is more demoralizing and confidence zapping than month after month of poor performance with no response from senior leadership. Focus on execution and achieving results should boost morale in the organization and renew a sense of confidence and optimism.

• Establish a high performance culture – According to the Wall Street Journal, Target’s headquarters have long been viewed as bloated with too many layers of management. By sharply reducing staff, Cornell and his team are sending a clear message that failure to achieve financial targets has consequences. While no company can be successful in the long run only by cutting expenses, it is also true that a firm’s expenses must be brought into alignment with a realistic forecast of future revenues.

 
In our view, Cornell and his team get high marks for making some difficult but necessary top leadership driven decisions. The next challenge will be mobilizing the organization to activate the execution of future strategies. Target is reportedly setting up work teams to address cross functional challenges such as analyzing customer data. This bodes well for engaging leaders across the organization in leading the transformation.