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How One Person Destroyed a Retail Giant

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While growing up, I always visited a store called Sears whenever my parents needed to buy something. Whether it was clothes, appliances, or even video games, my parents and I would visit the closest Sears and see what they had in stock. However, this retail giant has virtually disappeared from relevancy today, but why? How can a company that was such a dominant force in the retail industry suddenly disappear from peoples’ minds?

The article linked below explains how a hedge fund billionaire, Eddie Lampert, changed the structure of Sears after Kmart purchased the company for $12 billion in 2005. Lampert came into the business and completely restructured the organization. He made it so that each division would focus on its own profitability and loss (P&L) statements, while ignoring other divisions. This way, divisions and executive heads would have to compete against one another to bring out the highest profit margins. According to the article, Lampert “created the model because he expected the invisible hand of the market to drive better results” (Kimes 2). Unfortunately, this wasn’t what happened.

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Executives, who were formerly on friendly terms with one another, refused to share information about their own division. Kimes explains how “Former executives say they began to bring laptops with screen protectors to meetings so their colleagues couldn’t see what they were doing” (4). These same executives acted selfishly—thinking only of their division’s P&L statement and not sacrificing anything for the good of the whole store. Sears stock plummeted, the company had to close down over 100 stores, and store traffic has decreased significantly since this change.

Sears was destroyed by a blind person (or, at least, it was destroyed by many blind ideas). Lampert, a hedge fund billionaire, believed that restricting information and having separate divisions competing for resources was good for the company. He tried to take control of Sears, and it exploded in its face. The company’s stock and earnings have plummeted. Even in a business world, the idea of transparency, communication, sharing information, and common goals can help an organization meet its goals. However, when the opposite ideas are implemented, dominant giants in an industry can be whittled down to a shadow of their former self.

References:

http://www.businessweek.com/articles/2013-07-11/at-sears-eddie-lamperts-warring-divisions-model-adds-to-the-troubles

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1 Comments


David Brown
02/23/15

This article points out that transparency that had originally been present was eliminated by Mr. Lampert’s changes to the Sears organization.
This teaches us that just as the introduction of transparency to an organization is beneficial, the elimination of transparency can be detrimental to its success.
In this instance, the lack of transparency and communication caused a once great organization to fail.

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