Five years ago, Sears Chairman Eddie Lampert broke the company into 30 plus autonomous businesses, each with its own president, chief marketing officer, board, and separately measured profit and loss.
His idea was to harness the power of the free market, and to produce better and deeper data than anyone else.
But the radical restructuring went horribly wrong, as divisions engaged in cutthroat competition against each other, reports Mina Kimes at Bloomberg Businessweek. Some highlights from her report:
In order for a division to get help from the IT or HR departments, it had to write up a formal agreement or use a contractor. Since each company had its own board of directors, some executives were on five or six of them and spent all day in meetings.
Executive bonuses were based on individual unit performance, so people tried to boost their own division’s profit at the expense of others.
Kenmore, a brand sold exclusively by Sears, is its own unit. Sears’s separate appliance unit found it could make more money selling other company’s products, however, and therefore it gave outside merchandise more prominent placement than one of the company’s signature products.
It got to the point where execs started bringing laptops with screen protectors to meetings.
We recommend reading Kimes’s full nightmare report at Bloomberg Businessweek.
What went wrong? Lampert, who also manages hedge fund ESL investments, appears to have chosen fundamentally bad incentives, encouraging internal rivalries while ignoring external competition and their own customers. Creating major internal divisions blocked internal synergy. Even attempt to generate better data was corrupted by internal machinations.
Although only been CEO since January, Lampert has been the chairman and dominant power at Sears since spearheading Kmart’s takeover of the company in 2005.
While Sears has been suffering since the early 90s, the retailer has cratered since Lampert took over, with sales down $10 billion and the stock down 64%. Even in a retail industry under significant pressure that’s major failure.
Despite all of that, according to Kimes, the divisions are still in place today.
Most public companies wouldn’t be so patient — just look how quickly JCPenney abandoned former CEO Ron Johnson and his flailing turnaround plan.
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