Strategic Human Resource Management at Sears stores

Sears, an American chain of department stores, is one of leading retailers in the world. Under the leadership of CEO Arthur Martinez, Sears developed an employee-customer-profit model and successfully changed its financial performance in the 19th century (Rucci, Kirn and Quinn, 1998). Sears’ successful transformation has changed not only its market strategy but also organisational culture.

In the essay, I will firstly analyse forces for Sears’ transformation from the external and internal environment. Before presenting an approach of reward management, main issues of the old reward management will be discussed. Then I will review several elements which are essential for building up reward management and explain reasons. After all, I will make a conclusion of previous points.

External forces for transformation

Competitors

The severe threat from competitors in the market is a vital reason for the necessity of transformation. Porter (1980) identified five forces in the competitive environment in which competitive rivalry is one of key elements.

The early of 19th century had witnessed the worst performance of Sears. However, in the same period, Sears’ competitors, coming from difference sides, gobbled up market share with remarkable speed. Notably, Wal-Mart, focusing on the need of customers, was capturing the popularity of customers (Rucci, Kirn and Quinn, 1998).

Employees

The ignorance of the need of employees could affect the long-term development of Sears. Before the transformation, few workers could acknowledge managerial strategy and could have a clear view of what role they played.

Besides, the turnover in 1922 brought a heavy burden to employees, making them tire out. Due to the immediate need for improving performance, Martinez and his team temporarily ignored the attention of employees. The reengineered store operations heavily emphasised on ‘training, incentives, and the elimination of administrative and other non-selling tasks for sales personnel’ (Rucci, Kirn and Quinn, 1998).It brought a multiple of extra workload for employees.

Customers

The satisfaction of customer is vital for the development of the company. However, Sears turned to be a ‘self-absorbed’ company which was interested in its own management (Martinez and Madigan, 2001:14).According to the research conducted by the customer task force; customers’ opinions had been neglected by the headquarters. Besides, a multiple of cases had proved the failure to meet customers’ expectations (Rucci, Kirn and Quinn, 1998).

Internal forces for transformation

Finance

The financial crisis is the key for the urgent transformation. In 1992, sears undertook its worst crisis in history with a net loss of 3.9% billion. Although the success of 1992 turnover, it is essential to systematically transfer the organisation in order to gain a long-term profit. In 1992, with the arrival of Arthur Martinez, to resolve the urgent financial problem, ‘store operations were reengineered, with a heavy emphasis on training, incentives, and the elimination of administrative and other non-selling tasks for sales personnel'(Rucci, Kirn and Quinn, 1998).

Culture

The old command-and-control culture was too parental to take care about employees. Although top-down structure could produce effective initial outcomes, it was lack of the broad ownership and employee engagement (Rucci, Kirn and Quinn, 1998).

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Sears was entrapped in the history without recognising timely changing world. The old culture did not fit in the renewal environment. Therefore, changing Sears’ culture is necessary for company’s long-term development. It would be a battle against a deeply troubled, bureaucratic culture (Martinez and Madigan, 2001)

Main issues of reward management and motivation

Managers

A significant rate of pay linking to achievement of customers’ satisfaction target has negative effects on managers’ performance. Specifically, a large percentage of pay at risk may provoke negative reactions and some resistance. For instance, managers feel anxious about the insecurity of the job. Moreover, it is difficult to evaluate and identify the improvement of customers’ satisfaction which is affected by complex factors. Therefore, it is unfair to cut off variable pay because of customers’ satisfaction.

The application of Leadership skills model may not adequately fit with any positions. Sears has identified 12 leadership skills and qualities and utilised them in the evaluation, promotion and training (Rucci, Kirn and Quinn, 1998). However, the technical skill which is significantly vital for position is not clearly presented. Leadership skills model seems to be highly contextual.

Too much training can lead to diverse effects for Sears. Firstly, mangers need the time to exercise and apply what they have learned into job. Sears designs various types of training, such as learning maps, town hall meetings, which occupy much time. Besides, training programs bring financial burden for the company. Because cost of training covering rents of training rooms, fees for trainers or else can be expensive.

Employees

The flexible pay referring to customers’ satisfaction may affect employees’ performance in a negative way. In Sears, Goal-sharing pilot programs associate employees’ incentives pay with customers’ satisfaction. Additionally, employees’ income at risk may cause overwork and others which may damage both physical and mental health. Besides, it adds insecurity and unpredictability which can affect the working performance, cause anxious and pressure(Heery,1996).

The efficiency of communication with millions of employees could affect the deployment of reward management. Communication is a troubling issue for retailers like Sears with 300,000 employees at thousands of locations. Besides, the relatively high turnover rates require the necessary of ‘continual reorientation of new employees’ (Rucci, Kirn and Quinn, 1998).

New reward approaches

Amabile (1998) pointed out that as for creative and innovative workers, intrinsic rewards is a better motivator rather extrinsic rewards. Sears attempts to provoke the workers’ innovation and creativity, therefore, intrinsic rewards should relatively emphasised in reward management. Intrinsic rewards can be expressed as non-financial rewards. Armstong (2002) presented the importance of financial and non-financial rewards.

‘New reward ‘ approach is widely discussed by researchers. Features of ‘new reward’ can be simply generalised into ‘strategic, business-aligned, flexible, performance-driven, distinctive and integrative of the actions of employer and employee’ (Armstrong and Murlis, 2004).Reward management is a key element within human resource management which should be bound up with business strategy.

According to the situation of Sears, non-financial or intrinsic reward and ‘new reward’ should be taken account into the consideration of Sears’ reward system. In Sears, the importance of non-financial rewards is sensed to some extent. Besides, Reward systems which could make a significant strategic contribution to business success should be systematically designed and adjusted in accordance with the organisational strategy. Based on the analysis of specific situations of Sears, different ‘new strategy’ approaches are recommended for managers and employees respectively.

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Competence-based pay for managers

Competency-based pay is a method of rewarding people wholly or partly for individuals’ competencies which are demonstrated or performed in their positions (Armstrong, 2002).It is referred that competence-based pay which has associate competencies with current as well as expected future job performance is forward looking(Lewis, 2006). It could have a link with customer focus and reward behaviours or attitudes such as co-operation, courtesy and communication (Kessler, 2005). Therefore, 12 leadership skills as a part of competencies can be combined with the approaches; meanwhile large portion based on customers’ satisfaction can be changed.

As the notion of human resources as key assets has been widely accepted, competence-based payment system encourages and motivates managers incentives and innovation, providing them with a flexible reward. White and Drucker (2000:19) mentions that effective business performance depends on individual performance and seems to support for performance for the person rather than pay for the job including equal pay for equal work. Therefore, payment may be associated with forms of competencies-based pay, with reward to mould behaviour and encourage greater responsiveness to change.

Total reward approach for employees

Total reward combines the base salary and other benefits such as recognition, autonomy or opportunity (IRS, 2003a). It has might notice personal difference and circumstance, containing ‘a base salary, development opportunities or flexible working hours'(Lewis, 2006), allowing rewards to be offered which meet diverse needs. Therefore it can permit employees’ base salary meanwhile can meet individuals’ particular needs.

To some extent, total reward approach ensures the base salary which guarantees the job security and fairness in the fixed pay. The sense of fairness has a positive effect on the employees’ working efficiency. Employees can be encouraged when their efforts will lead to improved performance and be rewarded fairly to satisfy base needs (Martinez and Madigan, 2001).Although the amount of reward is quite small, it could make people feel appreciated and motivated (Kessler,2005).Take well-being for example, it has an effect on individuals and organisation. It could be improved by HR practices, such as building up flexible work patterns, conducting health and safety training programs or establishing work-life balance.

Other elements

Reward management, one of the key levers in pursuit of effective HRM, should be structured to meet HR objectives (White and Drucker, 2000:26).Additionally, there are at least other three elements deserved in HR practices. Reilly (2003) suggest that better attention also should allocate adequate time for implementation, including training, communication and guidance, monitoring and evaluating the outcome and discovering what has been learned from the results.

Recruitment and selection

Storey and Wright (2001) presented that it is apparent that the notion of labour as a competitive advantage underpins the HRM practices, including reward management system. Actually, the design of the reward management should consider recruited individuals’ need.

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Effective recruitment and selection can enhance the business performance, because it selects the right people who can match to job requirements. Besides, the ‘soft’ approach, selecting candidates from the organisation, implies a long-term investment in training and development or a reward scheme. It could improve employees’ loyalty and retention. Conversely, ‘hard’ approach brings new ideas, skills into the organisation (Storey and Wright, 2001). Better reward system can attract more competitive and qualified candidates.

Training and development

Training and development is a primary task which is helpful to implement the reward approaches in HR practices. As the perspective of the enterprises, training is to increase the competitiveness in the marketplace. Besides, appropriate training programs can be a method reward, improving the retaining rate. It could increase job satisfaction and improve employees’ loyalty to the company. Basadur (2004) indicated that training improves performance by finding, solving problems, and implementing solutions.

In employees’ point of view, they can get the opportunities to get access to higher rewarded position by obtaining tacit knowledge, skills from the attendance of training. Training can make people more willing to generate more and better ideas to solve problems. Besides, training programs can help employees have a better understanding of reward management approaches.

Assessment

As a key part of HR practices, assessment should underpin the whole process, connecting to the orgainisational strategy. Assessment techniques, such as 360 degree appraisal feedback or Sears’ TPI, have certain drawbacks; otherwise the working performance should be measured, monitored and controlled.

The immediate and accurate assessment ensures is pivotal. Geary (1992) also suggested that the effectiveness of the reward system depends on the method of selecting and implementing the system rather than itself. The on-going assessment of performance provides timely adjustments to improve performance with a possibility (Gold, 2003).

Conclusion

In the article, it has been analysed primary external and internal forces for Sears’ transformation. The external reasons are the threat from competitors, the loss of customers and employees’ extra workload. In terms of internal reasons, the significant cause is to obtain the long-term financial profit. The other is the bureaucracy culture. Secondly, main problems of Sears’ reward management are analysed from the perspectives of managers and employers. In the standpoint of managers, the main issues are: the insecurity of pay, widely applying leadership model which ignores the specific, technical skills and pressures from too much training programs. As for employees, incentive pays could raise the extra workload and high turnover requires the constant improvement of the effectiveness of communication.

In the following part, the alternative reward approaches are discussed respectively. Competency-based approach is recommended for managers; meanwhile total reward approach is the recommendation for employees. Lastly, three elements which internally connect to reward management in HR system are reviewed: effective recruitment and selection, appropriate training and development and on-going assessment.

(Word account = 1994)

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