STRATEGIC HUMAN RESOURCE MANAGEMENT AT SEARS Steven P. Kirn, Anthony J. Rucci, 1 Mark A. Huselid, and Brian E . Becker This article describes the HR Management System in place at Sears. Key emphases of Sears' HR management infrastructure include : (1) formulating and communicating a corporate mission, vision, and goals, (2) employee education and development through the Sears Uni- versity, (3) performance management and incentive compensation systems linked closely to the firm's strategy, (4) validated employee selection systems, and (5) delivering the "HR Ba- sics" very competently. Key challenges for the future include : (1) maintaining momentum in the performance improvement process, (2) identifying barriers to success, and (3) clearly articulating HR's role in the change management process . © 1999 John Wiley & Sons, Inc . ∎ Introduction and divesting Allstate, Coldwell Banker, the The makeover Discover Card, and Dean Witter brokerage in also included a focus on a target We'll know we have been successful as HR order to focus on Sears' core businesses. Sears customer-the leaders when there is no perceived need for is now in the midst of a five-year-old trans- middle class HR anymorewhen we are transparent . formation that includes a $4 billion store American mom -Senior HR Professional, Sears refurbishing program . The makeover also (25-54, included a focus on a target customer-the homeowner with Sears, Roebuck, & Company incorporated in middle class American mom (25-54, home- a household income between 1886 and is currently a retailing giant with a owner with a household income between $25,000 and market capitalization over $41 billion . Arthur $25,000 and $60,000)-and implementing a $60,000)-and Martinez, CEO of Sears, is effecting a sig- complementary marketing campaign of focus- implementing a nificant transformation of this retailing insti- ing on "the softer side of Sears" . These ef- complementary tution by broadening its scope to include an forts have been rewarded by an increase in marketing campaign of expanded array of home repair services and market share and profits, and by Sears being focusing on "the thousands of small stores, most of which will named by Fortune this year as the most inno- softer side of be closer to consumers and farther from shop- vative general-merchandise retailer. Sears". ping malls. Martinez took the helm in 1992, The firm's recent reorganization (in early when Sears was losing $3 .4 billion annually, 1996) left it with five distinct business units : and has since rejuvenated the company (1) full-line stores (approximately 250,000 through eliminating the Sears Catalog ; employees), (2) home or "off the mall" stores downsizing 50,000 jobs; closing 113 unprof- that include hardware, Homelife furniture, itable stores; selling the famous Sears Tower; dealer stores, and a variety of new concept Human Resource Management, Winter 1999, Vol . 38, No . 4, Pp. 329-335 © 1999 John Wiley & Sons, Inc. CCC 0090-4848/99/040329-07 3 3 0 • HUMAN RESOURCE MANAGEMENT, Winter 1999 specialty stores under development (approxi- much of the "low hanging fruit", and that go- mately 10,000 employees), (3) automotive (tires, ing forward, incremental improvements parts, service, and Western Auto ; approximately through HR will be much harder to find . 35,000 employees), (4) home services (product Both CEO Martinez and Tony Rucci point services and licensed businesses ; approximately to the importance of employee ownership in 30,000 employees), and (5) Sears credit (12,000 facilitating the implementation of Sears' strat- employees) . These business units were created egy, stating that "Ownership is the next phase to discourage management from making deci- in the transformation of Sears" . They argue sions solely through the lens of the full-line for the importance of creating an "ownership stores, and to help management develop and culture" at Sears that involves each employee implement strategies tailored to their particu- staying informed, taking action, and building lar market segments . Sears recently sold off its a financial stake in the future of the business . interest in Sears Mexico, leaving a 49% stake in In the following sections we highlight those Sears Canada as its only international opera- HR practices, policies, or strategies we con- tion. CEO Martinez does not have any further sider to be "high impact" (i.e., Sears was very international expansion plans, noting that in- good at them and such policies did have or ternationalizing Sears is "eleventh on his top were expected to have a significant effect on ten list of things to do" . The company is, how- the success of the firm) . ever, moving into marketing and selling certain key products via the Internet . High Impact HR Policies at Sears Central to the implementation of Sears' new strategy will be the opening of 380 new Formulating and Communicating a Corpo- stores this year, of which 358 will be freestand- rate Mission, Vision, and Goals After some ing specialty outlets (e .g., some of which will experimentation sell only hard goods like tools and automotive Perhaps the most salient of Sears' "best prac- with a more parts representing "the harder side of Sears") . tices" in the management of people is reflected "conventional" mission and Martinez explained the irony of the obvious in its process for developing a clear competi- vision statement contradictions by stating "a hallmark of great tive strategy and associated operational goals, (which was found companies is an ability to recognize the game and then relentlessly communicating both to have little has changed and to adapt" . In order to achieve strategy and goals to employees. After some direct impact on this flexibility, he also recognizes his people experimentation with a more "conventional" employee behavior), Sears have to be re-educated to the structural and mission and vision statement (which was developed a business strategy changes and made to "feel found to have little direct impact on employee conceptual comfortable outside a command-and-control behavior), Sears developed a conceptual model model offirm environment . getting them used to risk tak- of firm performance linking employees, cus- performance ing and innovation . ." tomers, and shareholders in a causal chain . linking This model, known throughout the firm as the employees, customers, and HR at Sears "three Cs" (for the creation of a compelling shareholders in a place to work, compelling place to shop, and causal chain. The HR community at Sears, under the di- a compelling place to invest), was subse- rection (through early 1998) of Senior VP of quently validated with very substantial Administration and HR, Tony Rucci, has been amounts of data collection and econometric widely identified as the single most important analysis . In 1995 Sears hired a consulting firm business group in leading the change efforts skilled in econometrics to help analyze data within the firm, most of which have come taken from 800 stores throughout the system about largely as a result of purposive changes (Rucci, Kirn, & Quinn, 1998 ; Yeung & in the way in which Sears manages its people . Berman, 1997) . These analyses confirmed The HR function has clarified its vision, added what Sears' management had long believed : more resources, and moved its staff closer to Corporate financial performance is a lagging the stores, but this has raised the expectations indicator, informative about what has already of the firm around HR going forward . There happened throughout the firm, but providing is the sense that HR at Sears has eliminated little information about what will happen . Strategic Human Resource Management at Sears • 33 1 Sears was able to establish that in its "high the most recent results along with the tar- touch" retailing environment, employee atti- get and the stretch goals that have been tudes affected customer attitudes and behav- set for the firm . The hope and intent is ior, both of which affected Sears' financial that they will cause managers to become performance. Moreover, Sears has been able more proactive . to show that an increase in employee satisfac- Given Sears' focus of the development of tion in one quarter will increase customer the three Cs, it should come as no surprise to retention in the next quarter, which will sub- learn that the firm has identified a series of sequently be reflected in shareholder returns 12 leadership competencies that are intended the quarter after that . Yeung and Berman to support each of the three "Compellings" . (1997) describe the magnitude of these inter- There is significant commitment to the 12 relationships as follows : competencies because there was widespread participation in their development. Over 100 . for every 5% improvement in associates executives participated in the process, which One surprising included a significant amount of survey work and consistent behaviors, customer retention was increased outcome of this by 1 .3%, revenues by 1 .04% and profit by and focus groups . An interesting point is that process was the 0 .4%. the 12 competencies do not apply exclusively finding that most What does this mean to Sears? It means to exempt employees : Sears has four levels employees had that if Sears succeeds in improving associ- of employees throughout the firm, and very little from 50% to the competencies are generic to all levels, understanding of ates behaviors by 5% (e.g., the financial and 55%), its revenue will be increased by $300 although each level may have different operations million (Sears' current revenue is approxi- behavioral expectations . aspects of Sears' mately $38 billion) . (p. 326) As noted above, in developing the three business. Cs a large number of focus groups were con- As such, much of Sears' competitive ducted at all levels of the organization, in one strategy involves making the firm a compel- way or another involving 80,000 associates . ling place to work and to shop, which it has One surprising and consistent outcome of this demonstrated will subsequently make it a process was the finding that most employees compelling place to invest .