Summary
Sears Holdings is reorganizing its operations that each unit will have greater responsibility over its own business. The decision is the result of falling profits, the result of a poor home goods market and weakening economy.
Analysis
Sears Holdings Corp, the retailer controlled by investor Edward Lampert, is planning to reorganize structure by setting up separate business units to run each of its lines. Sears is reorganizing in the face of declining profits for the third straight quarter, and a weakening economy.
The company has lines such as Lands End, Craftsman Tools, Kenmore Appliances, and DieHard batteries sold at its Sears and Kmart chains. Under the reorganization, each line will be managed by a group of executive advisers.
Sears is moving away from centralized management, in which executives had "companywide responsibility". The movement away from centralized control, to local independent units, will give each unit quick access to the expertise needed to manage that individual line. Concentrating on greater expertise within each market, and a greater amount of personalized care for each line will increase the efficiency and quality of management within each independent unit. Establishing smaller units that may respond quickly to change, will allow each line to adjust to changes in its market in a more efficient manner. Independent units will also reduce bureaucracy, and allow for greater personalization.
Centralized management in a large organization, such as a corporation or government, is cumbersome, slow, and bureaucratic. The centralized concept tends to increase not only bureaucracy, but also the expenses of running a large company. It also reduces expertise of management in an individual unit. Sears was being managed similar to a government, with the same result, falling profits and deficits, lack of response to change, and distant management that lacked expertise in any single area.
Centralized management is best used in small privately owned companies, that can manage the expertise and change in a personal environment based on the owners and managers expertise, not in large companies where the centralized system takes control leading to bureaucracy, expenses, and lack of concern for an individual unit.
Sears is reporting a fourth-quarter drop of more than 50% in both its Sears and Kmart chains. Sears reported a 99% drop in the third-quarter and a 39% drop in its shares last year. Sears is blaming increased competition and "unfavorable economic conditions" for its poor performance.
The managerial reorganization will help Sears to respond to a weakening economy and a weak home goods market, that is directly tied to declines in the housing and financial markets. Sears will need to be able to respond quickly, and with managerial expertise, to navigate the unfavorable direction the economy appears to be taking.
