He figures if he divides the company up into competing units, resources will naturally flow towards the most profitable and competently staffed units. With that information in hand, he can then make changes to the company. So if women’s apparel is getting its clock cleaned, then that may suggest that Sears shouldn’t bother with women’s apparel and can cut some deadweight. Or if the units aren’t “contracting” with Sears’ internal IT unit, and are instead utilizing outside contractors, then that suggests the IT unit needs to change what it’s doing. Like the Bloomberg article said, it’s a hedge fund model. Each unit is an “investment,” which may be divested if it’s not producing.
But this is a phenomenally silly way of gathering information about the various parts that make up the company. Any retail enterprise worth its salt ought to be able to figure out what’s selling and plan accordingly, without having to create Battlin’ Business Units that are at each other’s throats over who gets front page in the ad circular. With this model, any information gained is outweighed by losses in Sears’ economies of scope. And as the Soviets and the school reform movement could have told Lampert, when you put a central figure in charge of doling out resources to the most “worthy” units, you create perverse incentives to lie and cheat. Which isn’t to say that lying and cheating doesn’t happen in more centralized companies, but when your central planner is a skinflint like Eddie Lampert (less than 1% of Sears’ revenue spent on capital expenditures, compared to 2.8% for Wal-Mart), the more likely a Gresham’s dynamic will be created that dries up investment for honestly run units in favor of the units run by scheming, cutthroat SOBs.
Ultimately, I see it as another example of the crabbed Wall Street perspective on business, which sees companies as black boxes of income and expenses, and if you can just tinker with it you can get it to spit out more net income. But businesses aren’t black boxes, they’re organizations of people and culture and goods and services, and the financial data can’t be your sole focus if you’re truly trying to improve the company.
The “libertarian” point of dividing it into competing units is that you don’t have to gather the information. The information will sort itself out. Plus the policies for one unit may not be the right policy for another. I find it almost unbearingly shocking that a man who by all accounts is not a stupid man, thought that this would work.
This is, for me, the best conclusion to draw from the article. It was probably a bridge too far to use the example to indict economic systems that result from the social application of libertarian principles.
Still, I wonder what has caused the “crabbed Wall Street perspective” that drove Lambert’s plan to gain such currency. ISTM Lambert is a true believer in something; as pancakes3 says “I find it almost unbearingly shocking that a man who by all accounts is not a stupid man, thought that this would work,” to which I would add “and kept thinking that in spite of the results.” But of course, Lambert wouldn’t be the first to do serious damage based on an unshakable faith…
One prospect occurred to me. This could be a lead in to changing the nature of the company. Some businesses, I’m thinking jewelry depot type places, are actually setup where each table is a separate company, and the owner rents space in the building. So, people come to the giant jewelry store, and it’s technically a jewelry mall with no walls between the stores.
Sears/Kmart could work like that, where you spinoff Roebuck Mens Wear, Blue Light Appliances, etc. These spinoffs rent space, but they are free to rent wherever they like, even setup their own storefronts in areas without a Sears/Kmart presence. If one of the spinoffs couldn’t be competitive, you can replace them with another vendor and keep the Sears storefront.
Kind of like a mini-mall inside a single storefront.
I think stores like Wal Mart and Target already “kinda sorta” do this. Departments like electronics, toys, school supplies compete for floor space and even within the department the goods themselves compete for shelfspace. Cereals compete for Kids-eye-level and parents-eye-level spacing, clothes vie for aisle-accessibility, etc.
To open the organization up for unabashed bidding though… would be interesting.
And apparently one of the dolts tried doing this at Sears and failed miserably. Unless you count unemployment and lower sales a success. That’s the funny thing about libertarian philosophy, they say that by following it, we can achieve all these great things that we couldn’t when people are under the government’s thumb but in practice it just creates a lot of poor people that have to eat each other to survive.
If you believe Lambert wanted to simply remove obstacles for the sake of his beliefs, then you’re naive. Rather, he wanted to remove obstacles because he felt they would increase competition and bring in more profits. He failed, spectacularly and publicly. He showed that nobody should follow libertarianism in business or government because its success is defined very narrowly: “More freedom”, but that comes at the cost of less economic prosperity and security.
I’d be happy to stop talking about libertarianism if they simply admit that their philosophy is ONLY good for more freedom, but that freedom will lead to more chaos and poverty and crime
And that is their huge mistake in their philosophy, thinking that people care more about a vague notion of freedom than actual, tangible benefits like non-polluted water and air, a social safety net, or food that won’t kill you
Right, it is moronic to run businesses by a libertarian model
I would guess that most successful businesses don’t waste resources on non-performing departments and reward successes, you know, like normal people. And I’m also guessing that a successful business won’t give an operating budget of 100% or more above what they need. What kind of businesses are you imagining?
It’s moronic to run a business by anything other than a business model. Political philosophies don’t translate into business strategy and they never have.
Yeah, that was a typo. I intended to type the line you quoted, “To each according to their need, from each according to their ability”. Which would destroy any business.
IBM, when it was a monopoly, would have three teams working on something and use the best. Non-monopoly businesses can’t do this.
No company has only one problem, so talking about only one research problem is simplistic.
What you actually do, and I was involved in defining this strategy for my part of Bell Labs, is to do lots of cheap initial projects, evaluate them, and put major resources on the approach with the most potential. But this does not guarantee success. In the Sears context it would be like opening a boutique in a few stores and seeing what the sales are. But when you roll it out globally you have to go all the way. No one does competing processor designs, for example.
It is pretty funny to see posters here accuse Lambert of being naive when he has more money than all of us put together and also more experience running companies. The quotes in the OP seem to point to a business model to me - it is not like he sent all his managers a copy of Atlas Shrugged and told them to have fun. Bad business model, yes.
But not even a very original one. Everyone agrees that micromanaging from the top is bad, and almost everyone agrees that no oversight at all is bad. When I worked for AT&T I saw both models. The old Bel System model was defined for global optimization - the semiconductor division would do stuff that made no sense for them but which really helped the division that build switches. Then we went to a business unit operation where everyone was responsible for profit and loss. In research we went from one check at the beginning of the year to individual contracted projects, where I as a manager spend a lot of time managing 1/2 person projects. (and lots of people had it worse.)
In this case an ideological worldview mapped into a (bad) business strategy - just like libertarianism in general maps into a bad governing strategy. Unless maximizing “freedom” is all that counts, and starvation and homelessness are acceptable side effects.
You don’t always have to be naive about all things or wise about all things. You could be very smart at running an integrated business model but still naively think that an intra-competitive business model would be better.
Very interesting. Except department stores predate malls by kind of a lot, and the first malls had department store anchors.
Department stores got all the businesses in a city under one roof. More so in the past than now - when I was a kid department stores had food, restaurants, toys, and books, which department stores in Europe still have.
They declined in the US at least because of competition from specialty stores and then big box stores with more selection. Sears for example still sells mattresses, but their selection is trivial compared to mattress specialty stores.
We have Westfield malls in the Bay Area. They market the mall, they try to get a good mix of stores, they set the tone of the mall, but do you have evidence that they do detailed retailing like a department store or specialty store does?
I didn’t say he was a moron, but the model as described in the article is moronic. Giving your divisions incentive to actively undermine each other when a retail operation utterly depends on the total cooperation of every division is moronic. It can work fine in other industries, though, as I noted earlier.
Technically true, but he’s made the vast bulk of his money running a hedge fund, which is a knock that’s been repeated in this thread.
In terms of experience running companies, if you limit his experience to the period prior to taking over at Sears, he doesn’t have much more experience running large companies than any small business owner (actually, didn’t Mitt Romney more or less claim to be a “small business” owner on kind of the same grounds?).
Being successful at making money in the financial sector isn’t automatically a sign you have any insight into making money in other economic sectors or that you know how to manage more than a couple dozen employees.
And I content his problem was not lack of business experience but using libertarianism as a model.
For instance - each department contracting out IT is good in this model, but it means there is no possibility of sharing information across departments. WalMart has found that there is correlation between sales of seemingly independent items. That is not something you can find out if your hardware and men’s apparel departments are on separate computer systems - perhaps sale of gloves and snow shovels are correlated.
He clearly assumed that attempts to maximize the profits of individual departments would maximize profits of Sears as a whole - and he was clearly wrong.
I agree, and it might be the reason he thought this was a good idea. However I disagree with those who say that giving departments autonomy was done to get them ready to be sold off. I can see this for Kenmore and Craftsman, and even the auto centers which are usually separable from the main store. I don’t think splitting off in-store departments would work very well, so I doubt him making them separate was to get them read for sale.
People who like this strategy - and they don’t have to be libertarians - over-value individual department initiative and under-value synergy. Command and control people do the opposite. Good companies are somewhere between. Just like our free market system is between the command and control of communism and pure libertarianism. Which I admit has limits, just like Sears had to be all open on Thanksgiving or not open at all. Even Mr. Libertarian Lambert probably got that.
What’s the difference between the two cases? I’d say it was that each Sears employee has a duty to the owners to improve their profits. If competing against another division does not do that, despite maximizing their individual profits, then they are wrong. Independent retailers have no such obligation.
As applied to government, if the only metric is maximizing individual freedom in the broad sense (as in free to sleep under a bridge) then libertarianism with some exceptions for law enforcement works. (And we still have “coercive” taxes.) If the goal is to increase the general welfare, then not so much.
I think Wall Street guys in general tend to profess to libertarian ideals. Because they’ve gotten preposterously wealthy moving numbers around on a computer screen, they think it means that they’re unique geniuses who should be left alone so they can vacuum up all the money they can get their hands on, be lauded as job creators, lord over the peasantry, blah blah blah. Lampert is applying this imperious mindset on Sears. He wants these competing units to dance for him, and he’ll decide which are the strongest and get to survive. That strikes me as a rather crude way of determining which units aren’t contributing positively to Sears’ overall synergy, as well as destructive of profitability.
In this case, they were maximizing individual profits by trying to hamstring other departments, with both ending up worse off than if they cooperated, such as the Kenmore division charging the appliance division a stiff fee for being able to sell the Kenmore brand. The appliance division responded by giving premium space and promotions to non-Kenmore appliances with a smaller profit margin: the Kenmore fee made them a better value for the department. Net effect: lower margin for the department brand, less revenue for the Kenmore brand, and less value for the Kenmore brand in the eyes of customers.
Competition is not a magic cure-all. It’s great in some applications, and not in others.
That’s not the only metric libertarians care about. It’s not anarchism.
But it does. People have argued it before on these boards, look for examples where libertarians are challenged to come up with countries where its been tried. You’ll get 3 answers: Somalia, never tried, and tried but doing it wrong so it doesn’t count
In the entire world, there is no libertarian country that is stable and successful because libertarian philosophy does not create stable and successful goverments
Good, so we’re in agreement that libertarians have no business trying to run businesses.
Right, that again. I got what you were saying and my response hasn’t changed. You’ve list no reason that it doesn’t work
It might, we simply don’t know. It would require either a libertarian dictator, a contradiction in terms, to impose it by force, or a majority of voters to vote it in. That majority may or may not ever exist. I’m not holding my breath.
Of course, if one takes the long view, liberalism is on a pretty amazingly successful run over the last 300 or so years, so who knows what lies ahead?
Plenty of successful businessmen are libertarians. Plenty of successful businessmen are [insert most any political belief].
Wait, this response?
If so, that makes no sense. Once you stop “wasting resources on non-performing departments”, you are no longer practicing “to each according to their need”, are you? Rewarding individual success is right out too, that’s not “to each according to their need” either.
No, actual businesses in a free market practice “to each the minimum that will get the job done, and from each everything I can possibly get”.