The Organizational Issues That Lead to the Economic Decline of Sears

The Organizational Issues that Lead to the Economic Decline of Sears

MGCR 222

Section 003

Professor Young Ho Song

Urko Gagnon

Claudio Sanchez Malespin

Fotini Sevdalis

Gabrielle Zsigri

December 8th 2016

Sears was once known as the leading department store for the average middle class homeowners, however, the multi-billion dollar corporation is in a state of organizational and economic decline. Sears, officially named Sears, Roebuck and Co. in the United States, was originally established in 1886 by Richard Sears as a small-scale watch retailer (“History”, 2016). The company became public in 1993 and has since become one of the largest chain of department stores in North America (“History”, 2016). Sears sells a variety of home appliances, hardware, outdoor equipment, apparel, jewelry and cosmetics. Sears claims that their purpose is “provide quality products and services at great value when and where our customers want them, and by building positive, lasting relationships with our customers” ("About Us", 2016).

        Currently, Sears has 705 locations in the United States and 95 locations in Canada, with the number of operating locations decreasing each year (“Annual Report”, 2016). Although they are separate entities with different Chief Executive Officers, both Sears, Roebuck and Co. and Sears Canada Inc. are an extension of Sears Holdings, a holding corporation that holds over 50% and 11.7% of each company, respectively (“Annual Report”, 2016). Edward Lampert, the Chief Executive Officer of Sears Holdings, established a decentralized and hierarchical organizational structure with a wide span, however, the reporting systems appear to be more tall in nature. Lampert restructured the organization by firstly separating the organization into thirty separate business divisions, based on products, services and brands. Each unit operates as an autonomous business, functionally departmentalized with their own president, chief marketing officer and board of directors. Each unit is required to create their own financial statements in order to determine the most profitable units (Kimes, 2013). The managerial structure currently in place at Sears is both task and goal oriented, whereby, the executives of each unit are granted bonuses relative to their divisions performance and profit (Kimes, 2013).

Since Edward Lampert was appointed in 2013, the company’s situation has worsened dramatically, its share on November 11th 2016 being $12.67, compared to $21.51 on November 19th 2008 (Yahoo Finance, 2016). Although Lampert is considered a genius in the financial world, his strategy is considered to be leading the company to its downfall.

Organizational Behaviour Issues

Lampert is both Sears’ CEO and its largest investor, which has a direct impact on the way he operates the firm. He mainly focuses on buying back shares and yielding high profits (Allison, 2016). To do so, he divided the company into over 30 business units to maximize returns on investment, making Sears an asset to his eyes rather than a retailer. Even though he could be considered as a structural type of leadership for his will to make the company attain certain goals by following a structured procedure, he enacts an authoritarian leadership style and fails to take suggestions from other executives, ultimately neglecting other important issues such as the state and of the remaining stores.

The CEO’s actions are organizational level problems, but the fact that he refuses to concentrate his offers into delivering better services to customers is also an individual level problem. When the time comes to make decisions, he implements a forcing strategy. For example, Lampert threatened to move Sears out of Illinois if the company did not receive a preferred tax rate. While competition is great for the marketplace and consumers, within the company, Lampert’s vision has become disastrous. In order to boost profits, business unit managers brought in other brands such as LG and Stanley, cannibalizing Sears’ iconic brands such as Kenmore appliances or Craftsman tools” (Kaye, 2013).

The top-management’s strategy is solely focused on obtaining economic benefits, including practices such as diverting its focus away from the merchandising industry and expanding its operations into numerous business sectors, including the real estate business, that it is undermines the importance of organizational culture, not only by changing the company’s strategy, but also by removing every element of Sears’ identity, from its brands to its services (Peterson, 2016).

Secondly, communication is evidently a prominent issue within Sears that has led to a decrease in motivation among employees and has, therefore, contributed to the overall financial decline of the company. The lack of communication from upper to lower levels of the organization has caused employees at Sears to feel as if they were objects or machines rather than members of a team (Morran, 2013).             

Moreover, Sears makes no attempt to communicate with employees. Sears’ communication methods and decisions are aimed solely towards the shareholders and executives do not attempt to communicate with employees (Kimes, 2013). In reference to the Sender-Receiver model of communication, the messages sent from top managers are encoded and intended for the shareholders, however, are communicated to the organization as a whole (Peterson, 2016).  The issues arise because of the discrepancy between the messages and decisions that the executives are sending and the receiving process of the employees, seeing as though the messages are not even meant for the employees in the first place. Thus, employees are unable to decode the messages, do not properly understand the executive’s decision and are unable to execute them. As a result, the ambiance and atmosphere becomes tense and decreases employee efficiency and productivity. The decrease in employee performance has led to an overall decrease in the organization’s ability compete with their competitors. Additionally, Sears offers no channels for feedback (Kaye, 2013). Due to the lack of communication, there is a clear lack of motivation among employees, causing them to feel unattached to the organization and unwilling to help the company grow.

The final issue analyzed is the lack of organizational culture at Sears, and CEO Eddie Lampert's, reluctance to adopt to change in the modern commercial environment. The lack of organizational culture at Sears becomes evident through the espouse values that Sears proclaims, and the discrepancy observed when compared to the companies enacted values (McShane n.d.). Although Sears states that they aim to create a culture that emphasizes the shared values of “honesty, integrity, feedback and the highest ethical standards,” (Sears Co. 2010) their enacted values clearly show that managerial feedback is disregarded, employees are thought of as assets and the company is largely profit oriented. Though this makes it clear that the organizational culture at Sears is weak, there are three other specific factors which contribute to this issue that will be discussed.