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 University, (3)
performance management and incentive compensation systems linked
closely to the firm's strategy, (4) validated employee selection systems,
and (5) delivering the "HR Basics" 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 We'll know we have been successful as HR
leaders when there is no perceived need for HR anymorewhen we are
transparent . -Senior HR Professional, Sears Sears, Roebuck, & Company
incorporated in 1886 and is currently a retailing giant with a market
capitalization over $41 billion . Arthur Martinez, CEO of Sears, is effecting
a significant transformation of this retailing institution by broadening its
scope to include an expanded array of home repair services and
thousands of small stores, most of which will be closer to consumers and
farther from shopping malls . Martinez took the helm in 1992, when Sears
was losing $3 .4 billion annually, and has since rejuvenated the company
through eliminating the Sears Catalog ; downsizing 50,000 jobs; closing
113 unprofitable stores ; selling the famous Sears Tower; and divesting
Allstate, Coldwell Banker, the Discover Card, and Dean Witter brokerage in
order to focus on Sears' core businesses . Sears is now in the midst of a
five-year-old transformation that includes a $4 billion store refurbishing
program . The makeover also included a focus on a target customer-the
middle class American mom (25-54, homeowner with a household income
between $25,000 and $60,000)-and implementing a complementary
marketing campaign of focusing on "the softer side of Sears" . These
efforts have been rewarded by an increase in market share and profits,
and by Sears being named by Fortune this year as the most innovative
general-merchandise retailer. The firm's recent reorganization (in early
1996) left it with five distinct business units : (1) full-line stores
(approximately 250,000 employees), (2) home or "off the mall" stores that
include hardware, Homelife furniture, dealer stores, and a variety of new
concept The makeover also included a focus on a target customer-the
middle class American mom (25-54, homeowner with a household income
between $25,000 and $60,000)-and implementing a complementary
marketing campaign of focusing on "the softer side of Sears". Human
Resource Management, Winter 1999, Vol . 38, No . 4, Pp. 329-335 1999
John Wiley & Sons, Inc. CCC 0090-4848/99/040329-073 3 0 HUMAN
RESOURCE MANAGEMENT, Winter 1999 After some experimentation with a
more "conventional" mission and vision statement (which was found to
have little direct impact on employee behavior), Sears developed a
conceptual model offirm performance linking employees, customers, and
shareholders in a causal chain. specialty stores under development
(approximately 10,000 employees), (3) automotive (tires, parts, service,
and Western Auto ; approximately 35,000 employees), (4) home services

(product services and licensed businesses ; approximately 30,000

employees), and (5) Sears credit (12,000 employees) . These business
units were created to discourage management from making decisions
solely through the lens of the full-line stores, and to help management
develop and implement strategies tailored to their particular market
segments . Sears recently sold off its interest in Sears Mexico, leaving a
49% stake in Sears Canada as its only international operation . CEO
Martinez does not have any further international expansion plans, noting
that internationalizing Sears is "eleventh on his top ten list of things to do"
. The company is, however, moving into marketing and selling certain key
products via the Internet . Central to the implementation of Sears' new
strategy will be the opening of 380 new stores this year, of which 358 will
be freestanding specialty outlets (e .g ., some of which will sell only hard
goods like tools and automotive parts representing "the harder side of
Sears") . Martinez explained the irony of the obvious contradictions by
stating "a hallmark of great companies is an ability to recognize the game
has changed and to adapt" . In order to achieve this flexibility, he also
recognizes his people have to be re-educated to the structural and
business strategy changes and made to "feel comfortable outside a
command-and-control environment . . . getting them used to risk taking
and innovation . . . ." HR at Sears The HR community at Sears, under the
direction (through early 1998) of Senior VP of Administration and HR, Tony
Rucci, has been widely identified as the single most important business
group in leading the change efforts within the firm, most of which have
come about largely as a result of purposive changes in the way in which
Sears manages its people . The HR function has clarified its vision, added
more resources, and moved its staff closer to the stores, but this has
raised the expectations of the firm around HR going forward . There is the
sense that HR at Sears has eliminated much of the "low hanging fruit",
and that going forward, incremental improvements through HR will be
much harder to find . Both CEO Martinez and Tony Rucci point to the
importance of employee ownership in facilitating the implementation of
Sears' strategy, stating that "Ownership is the next phase in the
transformation of Sears" . They argue for the importance of creating an
"ownership culture" at Sears that involves each employee staying
informed, taking action, and building a financial stake in the future of the
business . In the following sections we highlight those HR practices,
policies, or strategies we consider to be "high impact" (i .e ., Sears was
very good at them and such policies did have or were expected to have a
significant effect on the success of the firm) . High Impact HR Policies at
Sears Formulating and Communicating a Corporate Mission, Vision, and
Goals Perhaps the most salient of Sears' "best practices" in the
management of people is reflected in its process for developing a clear
competitive strategy and associated operational goals, and then
relentlessly communicating both strategy and goals to employees. After
some experimentation with a more "conventional" mission and vision
statement (which was found to have little direct impact on employee
behavior), Sears developed a conceptual model of firm performance
linking employees, customers, and shareholders in a causal chain . This
model, known throughout the firm as the "three Cs" (for the creation of a
compelling place to work, compelling place to shop, and a compelling

place to invest), was subsequently validated with very substantial

amounts of data collection and econometric analysis . In 1995 Sears hired
a consulting firm skilled in econometrics to help analyze data taken from
800 stores throughout the system (Rucci, Kirn, & Quinn, 1998 ; Yeung &
Berman, 1997). These analyses confirmed what Sears' management had
long believed : Corporate financial performance is a lagging indicator,
informative about what has already happened throughout the firm, but
providing little information about what will happen .Sears was able to
establish that in its "high touch" retailing environment, employee attitudes
affected customer attitudes and behavior, both of which affected Sears'
financial performance . Moreover, Sears has been able to show that an
increase in employee satisfaction in one quarter will increase customer
retention in the next quarter, which will subsequently be reflected in
shareholder returns the quarter after that . Yeung and Berman (1997)
describe the magnitude of these interrelationships as follows : . . . for
every 5% improvement in associates behaviors, customer retention was
increased by 1 .3%, revenues by 1 .04% and profit by 0 .4%. What does
this mean to Sears? It means that if Sears succeeds in improving
associates behaviors by 5% (e .g., from 50% to 55%), its revenue will be
increased by $300 million (Sears' current revenue is approximately $38
billion) . (p . 326) As such, much of Sears' competitive strategy involves
making the firm a compelling place to work and to shop, which it has
demonstrated will subsequently make it a compelling place to invest .
Sears' "3C" model and its associated measurement indicators consist of
the following elements : 1 . Compelling Place to Work . Measured via
associates' attitudes toward their company and their jobs (the "My Opinion
Counts" survey) . 2 . Compelling Place to Shop . Contains measures of
both customer satisfaction and customer retention . 3 . Compelling Place
to Invest . Contains measures of revenue growth, operating margin, and
return on assets . As a result of this research process, and simplicity and
clarity of the message contained in the three Cs, this framework has a
considerable amount of credibility in the eyes of management . Data are
collected on an ongoing basis on workplace, customer, and shareholder
outcomes ; and these data are presented to the Sears workforce on a
quarterly and an annual basis-including Strategic Human Resource
Management at Sears 3 3 1 the most recent results along with the target
and the stretch goals that have been set for the firm . The hope and intent
is that they will cause managers to become more proactive . Given Sears'
focus of the development of the three Cs, it should come as no surprise to
learn that the firm has identified a series of 12 leadership competencies
that are intended to support each of the three "Compellings" . There is
significant commitment to the 12 competencies because there was
widespread participation in their development . Over 100 executives
participated in the process, which included a significant amount of survey
work and focus groups . An interesting point is that the 12 competencies
do not apply exclusively to exempt employees : Sears has four levels of
employees throughout the firm, and the competencies are generic to all
levels, although each level may have different behavioral expectations . As
noted above, in developing the three Cs a large number of focus groups
were conducted at all levels of the organization, in one way or another
involving 80,000 associates . One surprising and consistent outcome of

this process was the finding that most employees had very little
understanding of the financial and operations aspects of Sears' business .
Thus, the firm developed a series of interventions to increase the level of
economic literacy among the employees while concurrently reinforcing the
firm's mission, vision, values, and the three Cs . One very visible way in
which Sears does this is through the development of a series of Learning
Maps . Learning Maps take the form of large poster-sized graphical
representations of a variety of topics of importance to the implementation
of Sears' strategy. Highly colorful and engaging, Sears has developed five
Learning Maps to date, covering such topics as (1) Ownership : How does
it create value? What effect does it have on shareholder wealth? ; (2)
Sears Total Performance Indicators, including a detailed description of the
interrelationships among the three Cs ; (3) a New Day on Retail Street,
which describes the changes in the retailing industry and documents the
shift from mall to "off the mall" stores; (4) Voices of Our Customers, which
One surprising and consistent outcome of this process was the finding that
most employees had very little understanding of the financial and
operations aspects of Sears' business.3 3 2 HUMAN RESOURCE
MANAGEMENT, Winter 1999 The impetus for Sears University came from
the Senior Executive team, who fully funded the initiative . describes the
changing demographics and product/service choice processes of the
Sears' customer base; and (5) The Sears Money Flow, which describes how
each dollar of revenue is spent at Sears. Learning maps are presented to
employees in focus groups of ten employees, and the response to them
has been overwhelmingly positive . Learning Maps, in conjunction with a
variety of other communication tools, all help Sears to help its workforce
become engaged and informed . Education: The Sears University Designed
to a very great extent as a vehicle to help Sears transmit its culture and
"DNA" to the new and continuing workforce, Sears University offered its
first courses in the fall of 1994 . With a curriculum consisting of classroom
as well as cassette, CD-interactive, and self-paced instruction, employees
self-select into classes based on a developmental plan negotiated with
their managers (as part of the performance management process). The
capacity of Sears University is currently about 20,000 managers annually.
Course sign-ups are on a first comefirst served basis, and the University is
currently only able to satisfy two-thirds of the demand for the courses .
The courses are offered at Sears' corporate headquarters in Chicago and
at seven regional centers located around the country. Entry-level courses
are taught almost exclusively by Sears' managers, with outside faculty
used more frequently at the senior management level . Outsiders are used
only if they can demonstrate that they know Sears very well and are able
to effectively integrate the three Cs and the 12 leadership dimensions into
their courses . Going forward, the firm is considering the use of additional
distance learning methodologies and going on-line with courses .
Interestingly, Sears U makes its faculty available for 4 to 5 weeks a year
for consulting on "special projects" that might come up; this often involves
working with a team to solve a problem in a troubled store . And as a
general rule, Sears U has a strong preference for teaching and working
with intact teams or work groups, as it is felt that this facilitates the
transfer of knowledge back to the store or office . The concept has been
wildly successful, so much so that the firm plans to build a dedicated

building for Sears University . The impetus for Sears University came from
the Senior Executive team, who fully funded the initiative . While there is
recognition that at some point they may have to charge back regions or
stores for services, the initial intent was to fully fund the program at the
corporate level to reduce any resistance to using the services and also to
build a strong base of support for what the leadership is trying to do .
Executives in charge of Sears University cite the strong links between the
curriculum, the Sears' strategy, and senior management buy-in, as critical
success factors in the project's success . Performance Management and
Incentive Compensation Systems Like many organizations, Sears has
increased its emphasis on performance management and incentive
compensation systems in the recent past. Sears believes that its
management process must be linked closely to the three Cs for it to be
effective, and it is well on the way to achieving this objective. For Sears
this has meant a recrafting of these systems to reflect the importance of
the three Cs on evaluating and developing the 12 leadership
competencies that the firm has identified (this process is described in a
70-page manual made available to managers) . While the firm has
provided managers with multi-perspective performance appraisals for
nearly five years, this process is now being much more broadly
implemented throughout the firm. To deal with any potential negative
consequences arising from this process, the firm is providing coaching and
training on dealing with the feedback plus individual attention as well, if
necessary. Overall, it is felt that this process (which is mandatory all the
way down to mid-level managers) has effected a significant change in the
behavior of managers because they know that they will be held
accountable for their behavior. For the Sales Associates working in the
stores, the process differs somewhat . In an effort to gain more direct
feedback on employees, Sears randomly prints a $ 5 coupon on sales
receipts, which can be redeemed if customers call an 800 number (at their
convenience) andprovide the store with detailed feedback about their
shopping experience . For managers, total compensation is comprised of
base, annual incentive, and (for the top 250 managers in the firm) longterm incentives . Sears is now focusing more on pay for performance
(incentive pay is becoming more variable), and this pay is based to a
larger extent on customer service than in the past . Sears bases variable
pay 50% on financial performance, 25% on measures linked to creating a
compelling place to work, and 25% on measures linked to creating a
compelling place to shop (for 1998 these proportions will be 33% each) .
Sears has also increased incentive pay levels from the 50th to the 60th
percentile in its benchmark sample of firms with high total shareholder
return (the target is to move to the 75th percentile) . The intent of this
move was to increase the quality of new applicants and to aid in the
retention of high potential employees . In addition, all salaried associates
receive annual stock option grants . Employee Selection Systems Still
another area of competency for Sears is reflected in the development and
deployment of a series of validated selection devices for hourly and
managerial employees, as well as an extensive series of structured
interview guides for a wide variety of positions . For example, selection
tools have been developed to assess an applicant's "customer service
aptitude and dependability" . There is a stated policy that all applicants

will be administered a selection test if one is available for the position for
which they are applying. These selection tools are aided by a
computerized system to manage employee hiring (RESTRAC) and a
recently introduced job posting system . The use of these tools is
facilitated through the development of a very clear written documentation
for these tests. Delivery of the "HR Basics" Finally, and of significant
consequence, the firm is described as consistently delivering the "nuts and
bolts" HR very competently. For example, the basic transaction processing
issues are handled so efficiently that a number of consulting firms have
told Sears that they Strategic Human Resource Management at Sears 3
3 3 cannot deliver the services better or cheaper on an outsourced basis .
One way this process has been facilitated was to reduce over a sevenyear
period the number of associate service centers (handling employee
benefit questions) from 200 to just a single center . The delivery of the HR
basics in a world-class manner is one important way in which the firm
keeps and gains legitimacy with line managers and other constituencies
throughout the firm . Challenges Facing HR at Sears The business
turnaround at Sears in the last four years and the ongoing efforts at
cultural transformation have been impressive . A cornerstone of this
process has been the articulation of what Sears wants to be known for (a
compelling place to work, shop, and invest), and substantial energy has
been invested in infusing the three Cs into Sears' culture . Over the past
several quarters, however, the pace of improvement in revenues,
customer satisfaction ratings, and associates' attitudes about Sears as a
place to work has slowed. In addition, there is a growing sense that the
firm is losing momentum (or even worse, losing ground) in the desire and
willingness to do what it takes to continue the significant levels of
improvement recently achieved . In fact, the firm describes itself as
"reaching a crossroads". Actions taken today may determine whether
Sears : successfully reinvigorates the organization to continue
improving, accepts its progress to date as "good enough", or regresses
to a pre-turnaround mentality. The challenge, of course, is to build a
strategy that ensures the "successful reinvigoration" outcome for Sears .
Those leading the HR organization at Sears are currently using the
following questions to help frame a discussion on how to achieve this :
What makes us think that we're losing momentum in our desire to
improve? What does a "compelling place" look like to our associates,
customers, and investors? For example, the basic transaction processing
issues are handled so efficiently that a number of consulting firms have
told Sears that they cannot deliver the services better or cheaper on an
outsourced basis .3 3 4 HUMAN RESOURCE MANAGEMENT, Winter 1999
Do we know people who exemplify this vision when we see them? What do
we do about those that don't? Do our promotion, termination, and
recognition programs accurately define who's "got it" and who hasn't?
What barriers slow us down or undermine change efforts? Few people
know what "transformation" means-and many more are just plain tired of
hearing that word? Loss of heart or lack of commitment at the top?
Diffusion of focus or lack of cooperation across multiple business formats?
Failure to connect our many parttime employees to the three Cs? Seeing
"change management" as something that can be put in a binder or around
which a meeting can be built? What is HR's role in driving continued

improvement? Have we abdicated responsibility by saying "it's not an HR

issue"? If so, is that a mistake? Is it possible to create a large,
continuously self-renewing organization or must change, by necessity,
proceed in "bursts", precipitated by some crisis? What are the likely
consequences for Sears if we don't fully engage our associates in making
Sears a compelling place to work, shop, and invest?STEVE KIRN is Vice
President, Organizational Learning and Development for Sears, Roebuck,
and Co. In this role he is responsible for Sears' management and executive
development programs, for corporate direction of training efforts in Sears'
various business groups, and for organizational change and development
programs . He is also responsible for developing strategies to support
continuous learning and businesses throughout Sears . Prior to joining
Sears he was a Principal with the consulting firm of William M . Mercer,
Inc ., in its human resource management consulting practice . Dr. Kirn
earned his M.A . and Ph .D. degrees in clinical psychology from the
University of Florida . ANTHONY J . Rucci holds a bachelors, a Masters, and
a Ph .D. in organizational psychology from Bowling Green State University.
Dr. Rucci became Dean of the College of Business Administration at the
University of Illinois at Chicago (UIC) in 1998 . From 1979 to 1993 he was
employed by Baxter, ending his career there as Senior VP for corporate
strategy, business development, and media and investor relations .
Between 1993 and 1998 he was Executive Vice President for
Administration for Sears . He is a Fellow in the National Academy of
Human Resources and was recently named to Human Resource Executive
Magazine's Executive of the Year Honor Roll . In 1997 he was named
Executive of the Year by the International Association of College and
Professional Recruiters . BRIAN E. BECKER (Ph.D., University of WisconsinMadison) is Professor of Human Resources, and Chairman of the
Department of Organization and Human Resources, in the School of
Management at the State University of New York at Buffalo . Professor
Becker has published widely on the financial effects of employment
systems, in both union and non-union organizations . His current research
and consulting interests focus on the relationship between human
resources systems, strategy implementation, and firm performance. MARK
A. HUSELID is an Associate Professor in the School of Management and
Labor Relations (SMLR) at Rutgers University . He holds a Ph .D . in Human
Resource Management, an M.A . in Industrial and Organizational
Psychology, and an M .B .A. His current research and consulting activities
focus on measuring and evaluating the impact of human resource
management systems on firm performance . He has published widely on
these topics and currently serves on the editorial board of five major
academic journals . The recipient of numerous awards for his research,
Huselid is on the Board of Directors of the SHRM Foundation and is a
member of the Executive Committee of the Human Resource Management
Division of the Academy of Management . REFERENCES Rucci, A.J ., Kirn,
S.P., & Quinn, R .T (1998, January- through human resources : Reorienting
human February) . The employee-customer-profit chain at resource
measurement to drive business perforSears . Harvard Business Review,
83-97 . mance. Human Resource Management, 36, 321- Yeung, A.K., &
Berman, B . (1997) . Adding value 335 . ENDNOTE 1 . Dr. Rucci was

employed at Sears during the preparation of this article . Strategic Human

Resource Management at Sears 3 3 5