For those in business who idealize the philosophy of Ayn Rand, maybe it's time to forget books read during the teen years and start thinking about better ways to run a company. Put me in the same camp with Geoffrey James when it comes to saying that Ayn Rand is bad for business. Too bad for the investors in Sears that its CEO, Eddie Lampert, seems to remain a true believer.
Any person who demands the fealty of acolytes while preaching individualism is already off to a bad start with inherent contradictions. Apply the principles of Business-By-Rand and the start goes south pretty quickly.
It might be one thing to invest ruthlessly, but running a company is an entirely different occupation. That's the possible difference between structuring the takeover of Sears by Kmart when you’re the head of a hedge fund and being the CEO. Looking out for No. 1 is a bankrupt strategy when the basics of great business require you to look out for your customers and employees.
It’s division-eat-division out there.
Lampert has never hidden his affection for Rand and has taken actions to implement its ideas. For example, as Bloomberg reported back in 2013, he broke the company up into dozens of autonomous groups that have to compete for attention and resources. Only the strong will survive.
The problem that quickly develops in such a structure is suboptimization. It's a term that was once used frequently, particularly during the 1990s when companies were trying to reengineer themselves into more efficient and effective organizations. In any system, there are parts that may have to perform in suboptimum ways to get the entire venture to act optimally. If you were engineering a car, for example, you wouldn't optimize the drive train independently of braking and steering. If the car can run away from the ability to control it, you wind up with dead customers and massive lawsuits and regulatory intervention.
But with multiple executives fighting it out to get what they need, you end up running the company backward. Overall strategy takes a back seat to what individual groups can pull off. That was the problem that handicapped Microsoft in the mobile world. Windows and Office were the cash cows, and a future of the company, mobile, was left to wither. Apple and Google took away the significant market share that Microsoft once had.
Customers are so demanding.
The signs weren’t only in executive suites. Have you tried shopping in a Sears in the past five years? Ever needed help? Good luck finding it. Maybe the cost cutting was necessary, but when you undercut your ability to make customers happy because you've focused on what you want, you tell them to go elsewhere. To go to Kohl's or Target or Walmart or any of the other retail chains that, in comparison, have done brilliantly, particularly since 2011 and the general economic recovery.
There's a reason that, as of February 2015, Sears Holdings has only one-quarter of the positive same-store sales that Sears and Kmart had separately before the acquisition. That it's been burning through cash. It's fine to like philosophy, but trying to run a business on some absolute that discounts the fundamental relationships necessary to a successful company is a mistake, in practice as well as theory.