1.What is the underlying problem in this case from Edward Lampert’s perspective? 2.What are the key causes of Sears’ decline? To what extent did sears use a total Quality Management perspective in running the business? note : I need to be the answers from the PDF attached .sholud be the plagiarism max 20%Management in Action
The Decline of Sears
Sears, Roebuck and Company, commonly called Sears, was
founded in 1892 to sell one product—watches. By 1989 the
company had grown into the largest retailer in the United
States. Sears initially focused on selling its products via a
mail-order business that relied on a catalog.68 “When the
catalog first appeared on doorsteps in the 1890s, it fundamentally changed how Americans shopped. Back then,
much of the population lived in rural areas, and they
bought almost everything from little shops at rural junctions. These general stores had limited selection and
charged exorbitant prices. They were the only game in
town.”69 Sears’ mail-order business was a disruptor.
Over the years Sears evolved along with changing consumer tastes. When people moved from rural areas to cities, for example, the company opened hundreds of
standalone urban stores to meet consumers’ desire to
shop in attractive department stores rather than via catalog. Sears was also one of the first retailers to offer a
credit card in the 1980s—the Discover card—that earned
cash rewards for customers based on their purchases. This
innovation brought in a consistent source of revenue for
many years. The next change was to accommodate consumer preferences for shopping at malls. Sears responded
by anchoring its stores in malls across the country.
The retail environment started to change in the 1990s,
and Sears began to fall behind as discount shopping at
Walmart and Kmart took off. These companies were nimbler, changing prices and inventory to meet customer
preferences. Sears was more bureaucratic and was stuck
with higher overhead costs and catalog prices that had
been set months earlier. Not surprisingly, Walmart’s revenue grew while Sears’ did not. Enter online shopping.
The combination of convenience, selection, speed,
and low prices available through online shopping has
been a disruptive force for all retailers. Like its competitors, Sears has struggled against online sellers such
as Amazon.70 According to a writer from USA Today,
however, the venerable retailer faces even deeper challenges: Sears “has also suffered in the wake of its management’s decisions, including the sale of its more than
$30 billion credit card portfolio to Citibank in 2003,
and a merger with Kmart.”71
THE MERGER OF SEARS AND KMART
In 2004, Sears was acquired by Kmart, a company that
was then coming out of bankruptcy. The new firm was
christened Sears Holdings and led by Edward Lampert.
He had a background in investments but no retail experience at that time.72
Some business writers suggest Lambert purchased
Sears for the land on which hundreds of its stores stood.
According to one writer, “Lampert saw real estate value
as the key, and he has managed the two chains as a value
play ever since, ignoring the fundamentals of running a
retail business. Under Lampert, the company chronically underinvested in store maintenance, spending as
little as one-fifth of what its rivals spent to keep stores
clean and up to date. The result has been a customer
exodus, as no one likes shopping in dilapidated stores.”73
Another writer described Sears Holdings as having
“all the charm of a dollar store without the prices, nor
even the service, and with even more disengaged employees. Bright fluorescent lights highlight the drab floors,
peeling paint and sad displays of merchandising that are
reminiscent of department stores in the communist
Soviet Union. Some employees carry iPads, others do
not: Lampert’s affections for technology led to a policy
of employees required to use tablets on the shop floor,
even though most clerks said they were unnecessary.”74
WHAT LED TO SEARS’ DECLINE?
Forbes reported that “the popular opinion is that poor
management has led to the demise of both companies”
(Sears and Kmart). The magazine suggested that
Lampert pursued the wrong strategies, assuming the
goal was to improve Sears’ profitability and long-term
survival. 75 Consider the organizational structure
Lampert installed at Sears Holdings.
Following a structural model used in the finance
industry in which different teams compete for scarce
company resources, Lampert segmented the company
into 30 autonomous business units such as men’s wear,
shoes, and home furnishings. Each had its own executive
staff and board of directors. Rather than fostering colla
boration, this structural arrangement led to “cutthroat
competition and sabotage. Incentives were tied to the success of the individual business divisions, which often came
at the expense of other parts of the company.”76 A former
executive told the New York Times that “managers would
tell their sales staff not to help customers in adjacent
sections, even if someone asked for help. Mr. Lampert
would praise polices like these, said the executive.”77
Another aspect of Lampert’s strategy was to spend
on technology rather than on stores. Lampert thought
Sears was competing against Amazon. He thus “plowed
investment, new talent and marketing into Sears’ website and a customer loyalty program called Shop Your
Way. The program allows customers to earn points, for
purchases not only at Sears but at partnering businesses including Burger King, Under Armour, and
Uber, that can be redeemed for Sears merchandise.”78
Store appearance languished under this strategy.
WHAT’S THE LATEST?
Sears closed more than 350 stores in 2017 and plans
to sell an additional 100 in spring 2018. The company
generated much-needed cash by selling off some of its
key brands such as Craftsman for about $900 million.79
It also established new sources of revenue by making a
deal to sell “its DieHard-branded products—such as car
batteries, jump starters, and tires—on Amazon’s website. The retailer also started selling its Kenmorebranded appliances on Amazon” in 2017.80
Despite these efforts, Sears is “hemorrhaging money”
according to Business Insider. “Sales are down 45% since
early 2013, its debt load has spiked to $4 billion, and the
company is losing well over $1 billion annually.”81
Making matters worse, “Sears said in a filing with
the Securities and Exchange Commission [in 2017]
that it had ‘substantial doubt’ about its ability to stay in
business unless it can borrow more and tap cash from
assets.”82 The company is definitely pursuing this strategy according to CNNMoney. This source reported in
2018 that the company announced it will “cut another
$200 million a year (beyond the stores it already
planned to close). And it’s looking to increase the
amount of money it is able to borrow.”83
According to the New York Times, Lampert believes
the company can turn things around. He told a reporter
that “while there is still work to do, we are determined
to do what is necessary to remain a competitive retailer
in a challenging environment.”84 Others doubt this
c onclusion because Lampert is too disengaged from
the running of Sears’ operations. Former executives say
he managed the company from his home in Miami,
setting foot in the company headquarters only for its
Problem Solving Perspective
1. What is the underlying problem in this case from
Edward Lampert’s perspective?
2. What are the key causes of Sears’ decline?
3. Do you think Lampert can turn the company around?
Why or why not?
Application of Chapter Content
1. What does the Human Relations Movement suggest
went wrong at Sears?
2. Use the four parts of a system to diagnose the company’s decline. Provide support for your conclusions.
3. To what extent did Sears use a total quality management perspective in running its business? Explain.
4. What key lessons from this chapter could Lampert
have used to improve Sears’ performance following
the merger with Kmart? Explain.
What Should You Do about an Insubordinate
You are a vice president for a company in the insurance industry, and you supervise five managers. These
managers in turn supervise a host of employees working in their departments. Your company is having trouble achieving its sales growth goals and your boss, the
president of a division, called a meeting with you and
your peers to create a plan of action.
The meeting was a bit volatile because layoffs were
proposed and it was agreed that all vice presidents had
to decrease their budgets. This means that you and
your peers were not allowed to hire consultants or
send employees to training. You also have to reduce
your labor costs by $300,000. This means that you
must lay off employees. You informed the managers
that report to you about these decisions and asked
them to come up with a list of potential people to lay
off. You suggested that performance should be the key
criterion for deciding layoffs.
Two weeks later one of your reporting managers
walked into your office with a worried look. He told
you that Jim, one of your other reporting managers,
had just hired a consultant to lead a teambuilding
s ession with his group in another state. Not only did
this require significant travel expenses, but the consultant’s fees were well outside of your budgeted expenses.
Further, your other employees were expressing feelings
of unfairness because Jim was taking his team on a
teambuilding trip and they were being forced to cut
costs. It also was a bit inconsistent to spend money on
teambuilding when impending layoffs were just around
In terms of layoffs, all your reporting managers submitted a list of potential employees to let go except for
Jim. You have no idea why he avoided this task.
Jim’s behavior clearly violates the agreement that
was made about cost cutting, and you are upset that he
has not submitted his list of employees to lay off. You
have not yet spoken to him about this insubordination,
and now you are wondering what to do.
SOLVING THE CHALLENGE
What would you do?
1. Meet with Jim to review his behavior. Tell him that
any more acts of insubordination will result in termination. Don’t make a big deal about these events and
don’t include documentation in his personnel file.
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