Assignment Purposes/Learning Outcomes:
After completion of Assignment-1 students will able tounderstand the
LO 1.1: State the concept of management functions,roles, skills of a manager and the different theories of management.
LO2.2: Employ knowledge and techniques of strategic planning, problem solving,decision making and change management.
Please read the case The Decline of Sears This case is derived from the textbook/e-textbook Management:A Practical Introduction by Angelo Kinicki. Answer the followingquestions:
The Decline of Sears
Sears, Roebuck and Company, commonly called Sears, was founded in1892 to sell one productwatches. By 1989 the company had grown into thelargest retailer in the United States. Sears initially focused on selling itsproducts via a mail-order business that relied on a catalogue. When the catalogue first appeared on doorsteps in the 1890s, itfundamentally changed how Americans shopped. Back then, much of the populationlived in rural areas, and they bought almost everything from little shops atrural junctions. These general stores had limited selection and chargedexorbitant prices. They were the only game in town. Sears mail-order business was adisruptor.
Over the years Sears evolved along with changing consumer tastes.When people moved from rural areas to cities, for example, the company openedhundreds of standalone urban stores to meet consumers desire to shop inattractive department stores rather than via cata- log. Sears was also one ofthe first retailers to offer a credit card in the 1980sthe Discover cardthatearned cash rewards for customers based on their purchases. This innovationbrought in a consistent source of revenue for many years. The next change wasto accommodate consumer preferences for shopping at malls. Sears responded by anchoringits stores in malls across the country.
The retail environment started to change in the 1990s, and Searsbegan to fall behind as discount shopping at Walmart and Kmart took off. Thesecompanies were nimbler, changing prices and inventory to meet customerpreferences. Sears was more bureaucratic and was stuck with higher overheadcosts and catalogue prices that had been set months earlier. Not surprisingly,Walmarts revenue grew while Sears did not. Enter online shopping.
The combination of convenience, selection, speed, and low pricesavailable through online shopping has been a disruptive force for allretailers. Like its competitors, Sears has struggled against online sellerssuch as Amazon. According to awriter from USA Today, however, the venerable retailer faces even deeperchallenges: Sears has also suffered in the wake of its managements decisions,including the sale of its more than $30 billion credit card portfolio toCitibank in 2003, and a merger with Kmart.
THE MERGER OF SEARS AND KMART
In 2004, Sears was acquired by Kmart, a company that was thencoming out of bankruptcy. The new firm was christened Sears Holdings and led byEdward Lampert. He had a background in investments but no retail experience atthat time.
Some business writers suggest Lambert purchased Sears for the landon which hundreds of its stores stood. According to one writer, Lampert sawreal estate value as the key, and he has managed the two chains as a value playever since, ignoring the fundamentals of running a retail business. UnderLampert, the company chronically underinvested in store maintenance, spendingas little as one-fifth of what its rivals spent to keep stores clean and up todate. The result has been a customer exodus, as no one likes shopping indilapidated stores.
Another writer described Sears Holdings as having all the charm ofa dollar store without the prices, nor even the service, and with even moredisengaged employees. Bright fluorescent lights highlight the drab floors,peeling paint and sad displays of merchandising that are reminiscent ofdepartment stores in the communist Soviet Union. Some employees carry iPads,others do not: Lamperts affections for technology led to a policy of employeesrequired to use tablets on the shop floor, even though most clerks said theywere unnecessary.
WHAT LED TO SEARS DECLINE?
Forbes reported thatthe popular opinion is that poor management has led to the demise of bothcompanies (Sears and Kmart). The magazine suggested that Lampert pursued thewrong strategies, assuming the goal was to improve Sears profitability andlong-term survival. Consider the organizational structure Lampert installed at SearsHoldings.
Following a structural model used in the finance industry in whichdifferent teams compete for scarce company resources, Lampert segmented thecompany into 30 autonomous business units such as mens wear, shoes, and homefurnishings. Each had its own executive staff and board of directors. Ratherthan fostering collaboration, this structural arrangement led to cutthroatcompetition and sabotage. Incentives were tied to the success of the individualbusiness divisions, which often came at the expense of other parts of thecompany. A former executive told the New York Times that managerswould tell their sales staff not to help customers in adjacent sections, evenif someone asked for help. Mr. Lampert would praise polices like these, saidthe executive.
Another aspect of Lamperts strategy was to spend on technologyrather than on stores. Lampert thought Sears was competing against Amazon. Hethus ploughed investment, new talent, and marketing into Sears website and acustomer loyalty program called Shop Your Way. The program allows customers toearn points, for purchases not only at Sears but at partnering businessesincluding Burger King, Under Armour, and Uber, that can be redeemed for Searsmerchandise. Storeappearance languished under this strategy.
WHATS THE LATEST?
Sears closed more than 350 stores in 2017 and plans to sell anadditional 100 in spring 2018. The company generated much-needed cash byselling off some of its key brands such as Craftsman for about $900 million. It also established new sources of revenue by making a deal to sellits Diehard-branded productssuch as car batteries, jump starters, andtireson Amazons web- site. The retailer also started selling its Kenmore-branded appliances on Amazon in 2017.
Despite these efforts, Sears is haemorrhaging money according to BusinessInsider. 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.
Making matters worse, Sears said in a filing with the Securitiesand Exchange Commission [in 2017] that it had substantial doubt about itsability to stay in business unless it can borrow more and tap cash fromassets. The company isdefinitely pursuing this strategy according to CNNMoney. This sourcereported in 2018 that the company announced it will cut another $200 million ayear (beyond the stores it already planned to close). And its looking toincrease the amount of money it is able to borrow.
According to the New York Times, Lampert believes thecompany can turn things around. He told a reporter that while there is stillwork to do, we are determined to do what is necessary to remain a competitiveretailer in a challenging environment. Others doubt this conclusion becauseLampert is too disengaged from the running of Sears operations. Formerexecutives say he managed the company from his home in Miami, setting foot inthe company headquarters only for its annual meeting.
Part 1- Problem Solving Perspective
1. What is the underlying problem in this case from Edward Lampertsperspective? (1.5 marks)
2. What are the key causes of Sears decline? (1.5 marks)
Part 2- Application of Chapter Contents
3.What does the Human Relations Movement suggest went wrong at Sears? (4 marks)
4.Use the four parts of a system to diagnose the companys decline. Providesupport for your conclusions. (4 marks)
5. To what extent did Sears use atotal quality management (TQM) perspective in running its business? Explain. (4marks)