Suppose you are the head of a big corporation that consists of a large number of retail stores all over the country aimed at the middle classes. You also happen to be a devotee of Ayn Rand, so much so that you can rattle off by memory huge chunks of her oeuvre, no mean feat considering her awful writing. Hedge Fund manager Eddie Lampert was one such person and when he became CEO of the merged corporation of Sears and Kmart, he put Rand’s ideas into practice.
For such a person, what would be more natural than to think that the best way to improve efficiency and increase profits is to pit the managers of individual stores against each other in a competition, rather than the previous system where they all saw themselves as working together as part of the same team?
Lampert runs Sears like a hedge fund portfolio, with dozens of autonomous businesses competing for his attention and money. An outspoken advocate of free-market economics and fan of the novelist Ayn Rand, he created the model because he expected the invisible hand of the market to drive better results. If the company’s leaders were told to act selfishly, he argued, they would run their divisions in a rational manner, boosting overall performance.
Instead, the divisions turned against each other—and Sears and Kmart, the overarching brands, suffered. Interviews with more than 40 former executives, many of whom sat at the highest levels of the company, paint a picture of a business that’s ravaged by infighting as its divisions battle over fewer resources.
As Lynn Parramore writes, it doesn’t take a genius to predict what might happen.
Lampert took the myth that humans perform best when acting selfishly as gospel, pitting Sears company managers against each other in a kind of Lord of the Flies death match. This, he believed, would cause them to act rationally and boost performance.
If you think that sounds batshit crazy, congratulations. You understand more than most of America’s business school graduates.
Instead of enhancing Sears’ bottom line, the heads of various divisions began to undermine each other and fight tooth and claw for the profits of their individual fiefdoms at the expense of the overall brand. By this time Crazy Eddie was completely in thrall to his own bloated ego, and fancied he could bend underlings to his will by putting them through humiliating rituals, like annual conference calls in which unit managers were forced to bow and scrape for money and resources. But the chaos only grew.
The result?
Lampert is now known as one of the worst CEOs in America — the man who flushed Sears down the toilet with his demented management style and harebrained approach to retail. Sears stock is tanking. His hedge fun is down 40 percent, and the business press has turned from praising Lampert’s genius to watching gleefully as his ship sinks. Investors are running from “Crazy Eddie” like the plague.
But there is one thing about adult Ayn Rand followers. They are like a religious cult and they will drink the Kool-Aid rather than admit they are wrong.
The great American experiment; finding the perfect combination of idiocracy and kleptocracy. So close…
The Sears in my city closed just recently.
You might be wondering; if Lampert is doing such a terrible job as CEO, why doesn’t the board fire him? Because Lampert’s hedge fund owns a big chunk of Sears and control the board. And their financial share of the company is growing.
Sears turns to Lampert again for cash before holiday season
Eddie Lampert And His Hedge Fund Have Lost A Combined $236 Million On Sears Today
Brownback did something similar with the state of Kansas and it was an incredible failure. He was just reelected anyway and I can’t explain that.
Scott Walker same thing with Wisconsin. He was also reelected governor.
Paul Krugman, Nobel prize winner, has at least a coherent explanation. They keep trying bad ideas like supply side economics, known to fail because they don’t care. Who benefits by these seeming failures? A few very rich people.
This is sometimes called the shark tank model of business management. Lampert is the one throwing fresh meat into the tank of sharks.
It tends to yield short term successes and long term failures. You end up with a few plump sharks who may not know much more than how to become…a plump shark.
I’ve seen it before. And seen it work for a while and then fail spectacularly. In one case, the sharks pulled the shark feeder into the tank. And ate him. (They managed to blame him when things stopped working and pushed him out the door.) Things didn’t turn around anyway and they sold out to another company out of necessity.
There is a good reason cutthroat ‘winner take all’ competition fails. Because in the end, if there’s going to be few winners, why play? The steeper the competition, the bigger the waste of time.
the other thing is, there is this thing called stress and people can only handle so much of it. Not everybody is a Randian sociopath purely driven by their desire to see as many people fail as possible.
Lampert took the myth that humans perform best when acting selfishly as gospel, pitting Sears company managers against each other in a kind of Lord of the Flies death match. This, he believed, would cause them to act rationally and boost performance.
As other commenters have pointed out, the real world doesn’t actually run the way global warming deniers, young earth creationists, and political utopianists believe it should run. But this situation was undoubtably made worse by the players; I’m guessing that the managers were at that level of management where they were selected not for their ability to run businesses and make rational decsions but on their ability to toady up to higher ups, take credit for other people’s good ideas, escape blame for their own bad ideas, and stab the right people in the back when it suits their purposes.
He just didn’t do it hard enough. Or he was sabotaged by untermenschen.
Anyone with such misplaced self-confidence is not going to learn from his mistakes, because his world-view is that it’s someone else’s mistake.
A functioning society would protect people from crazed capitalists -- they are vastly more damaging than terrorists.
This is such a shame. From the 1970s through the early 2000s, I saw Sears as a place to go for basic necessities--clothes, appliances, etc. The latter years, I saw them as a place to get basic kids’ clothes. In the last few years, however, the stores near me have been mismanaged into chaos…now I see why.
I once worked for an IT company with an ‘eat your young’ mentality, and it also crashed for much the same reason--greed and paranoia only takes you so far. Then the underlings revolt of leave you standing high and dry.
“pitting Sears company managers against each other”
“You understand more than most of America’s business school graduates.”
They should investigate Hitlers management of German bureaucracy. Hitler did exactly the same, based on a different doctrine though: survival of the fittest. His instructions were deliberately vague and given to at least two departments, which invariably started to fight each other. The positive outcome (for Hitler) of course was that they hadn’t time to plot against Hitler. The downside was a remarkable lack of efficiency, exactly because the departments had to spend so much time at infighting (I have seen estimates of 30-40%).
Marcus Ranum @9:
“Anyone with such misplaced self-confidence is not going to learn from his mistakes, because his world-view is that it’s someone else’s mistake.”
Exactly right. Such philosophies, in their self assumed absolute correctness, can never ‘fail’ they can only be ‘failed’. Carriers of this philosophical disease almost never change and will to their dying day assume that it all would have worked if they had just pushed a little harder.
Way back in the early 90’s I worked for Blockbuster Video, and they used to have inter store competitions to pre-sell the most of whatever big title was coming out. At first, the employees of the winning store would get some small prize, like a pizza party, though honestly we hardly ever actually collected our prize. The store manager would get something better, and the district manager would get a large screen TV.
Then they phased out the prizes for the employees. The Store manager would get a bonus, and the district manager would get a trip to Hawaii.
Then they phased out the store manager prize. The district manager would get a new car.
But the corporate office could never figure out why the employees weren’t just thrilled to participate.
Even before Lampert, Sears used to do something similar with their suppliers: keep them in tight competition with each other, and move contracts around even when all their terms were met, just to keep everybody on their toes.
As a result, their house lines -- Craftsman tools, Kenmore appliances, etc -- would work about as well as their equivalents in the same price range, but when they needed fixing to find the right part was next to impossible (even for Sears in-house repair shops).
Humans self-sabotage at least as much as we screw up each other.
Aren’t businesses supposed to focus on beating the competition, i.e. other businesses? If there’s ever news of Lampert getting his paws on another business, invest in the competition.