Principles of management assignment | Principles of Management

Assignment Purposes/Learning Outcomes:

After completion of Assignment-1 students will able to
understand the

LO 1.1: State the concept of management functions,
roles, skills of a manager and the different theories of management.

LO
2.2: Employ knowledge and techniques of strategic planning, problem solving,
decision making and change management.

Assignment-1

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 following
questions:

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 catalogue.  “When the catalogue 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.” 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 cata- log. 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 catalogue 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.  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.”

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.

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.”

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.”

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. 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 collaboration, 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.”  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.”

Another aspect of Lampert’s strategy was to spend on technology
rather than on stores. Lampert thought Sears was competing against Amazon. He
thus “ploughed 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.”  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.  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 web- site. The retailer also started selling its Kenmore-
branded appliances on Amazon” in 2017.

Despite these efforts, Sears is “haemorrhaging 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.”

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.”  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.”

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.” Others doubt this conclusion 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 annual meeting.

QUESTIONS

Part 1- Problem Solving Perspective

1. What is the underlying problem in this case from Edward Lampert’s
perspective? (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 company’s decline. Provide
support for your conclusions. (4 marks)

5. To what extent did Sears use a
total quality management (TQM) perspective in running its business? Explain. (4
marks)