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Getting To Bad Business Outcomes

Sears Canada is no more.  Many say they saw it coming but no one could stop it.  It is a wonder how a company that had a huge head start in catalogue shopping could fail so miserably with e-commerce.   They were the first Canadian retailer to have an e-commerce website so it’s not that they didn’t see the opportunity.

Based on that, it probably wasn’t gross mismanagement.  They were in business for 64 years and a major player for much of that time.  It was only in 2009 when they laid off 10% of their workforce that Sears started to run into trouble.  That was the beginning of a negative spiral that this week resulted in the closing of 130 stores and the eventual loss of 12,000 jobs.

Over the next few years, there will be books written on why Sears failed and what they could have done to save themselves.  If we are not interested in the details we can come to one conclusion as to the cause of their failure today.  They and their owners, Sears Holdings, made many bad decisions.  They may also have experienced a certain amount of bad luck but given their size and the natural advantages that they had in catalogue sales, retail locations and well-regarded brands they had to make numerous bad decisions to end up where they are today.

Sears demonstrates the tendency of bad decisions to limit decision options leading to a point where an organization is limited to making only bad decisions.  In 2013 they made the decision to release a one-time $5.00 per share dividend.  At the same time, they announced that gross margins came in ahead of expectations and they had experienced the first increase in same-store sales since 2008.   CIBC rated their stock as “sector outperform”.

While they were already downsizing and rationalizing operations, the large dividend removed substantial cash from the organization.  News articles, after the bankruptcy announcement, suggest this decision starved the company of innovation capital that could have been used to upgrade stores and modernize operations (Shaw, 2017).  Decisions became focused on saving capital rather than innovation and growth.  They then became focused on how to stave off bankruptcy and maintain viable operations.  Finally, the only decision space remaining was related to how and when to dissolve the company.

It may be a bit of a stretch to blame all of Sear’s problems on a single decision, but it does demonstrate that bad decisions create limitations on future decisions.  That can easily create a negative spiral where bad decisions create a limited decision space and one becomes limited to trying to make the best bad decision.

While we used an example of a single decision creating a negative environment it is more likely that an organization will find itself in this situation due to a long history of poor decision making.  Things can seem to be going well but weak decisions can begin to limit the decision space.  It may be a failure to improve infrastructure that leads to the inability to take advantage of new productivity-enhancing technologies.  It may be a failure to update governance practices that leads to good people moving on to other organizations.  It may be that projects take too long and deliver too little lowering efficiency and limiting agility.

The takeaway here is that when an organization runs into trouble things often seem to be going well until, suddenly, they aren’t.   So, a prudent manager might ask what are some early signs that an organization is making less than optimal decisions?

The short answer is that there isn’t any single obvious and definitive flag.  Every organization, while trying to make good decisions, makes poor decisions.  Every organization is constantly balancing resources against challenges and opportunities.  There is not even one right solution that one can measure progress against.   While there may be some obvious issues related to decision-making skills, group dynamics, and culture, good decision-making in an organization is more about balance and consistency.  Most organizations will get the greatest benefits by focusing on optimizing alignment of the decision-making hierarchy.  To learn about the decision-making hierarchy view our recent article “The Hidden Hierarchy that Underlies Corporate Decision Making”.

Optimizing the decision-making environment of an organization involves tuning the environment and tracking decision quality on an ongoing basis to measure success.  Tyra has a full range of tools and techniques to help you evaluate your risk, tune your organization, and measure decision-making quality.  Visit us at tyrastrategies.com.

References

Shaw, H. (2017, 10 11). 'Following the Eaton's death spiral' Sears to end 65 years of retail history. Retrieved from Financial Post: http://business.financialpost.com/news/retail-marketing/brief-sears-canada-to-seek-court-approval-for-liquidation