Organizational diagnosis and turnaround strategy for Kmart Corporation

¶ … Kmart Corporation and its performance problems that have become evident over the past few months. First we will provide an overall description of the organization including its macro and microenvironments. Next we will diagnose the apparent problems that the Kmart Corporation has. The paper will then present a plan of intervention and implementation. In addition we will evaluate the plan and discuss the effect the changes will have on the corporation. Finally we will discussed the lessons that we have learned in attempting to implement changes to the corporation.

KMART CORPORATION DESCRIPTION

Kmart Corporation is a discount and general merchandise retailer. It began as the S.S. Kresge Co. founded by Sebastian S. Kresge in 1899. (Yahoo Finance) The name was changed to Kmart in 1977. In 1984 the company purchased Walden Books and Home Centers of America. Kmart began to collaborate with Martha Stewart in 1987; she became their primary spokesperson and consultant. Kmart bought The Sports Authority in 1990 and obtained 90% of Office max in 1991. (A Kmart Timeline) In 1995 Kmart sells all stakes in the Sports Authority and Office Max. In the year 2000 Charles Conaway becomes the chairman and CEO, replacing Floyd Hall. Finally in 2001 Kmart purchase the Internet site bluelight.com. (A Kmart Timeline).

Today the Company operates in the general merchandise retailing industry through 2,105 Kmart stores, with locations in all 50 United States, Puerto Rico, the United States Virgin Islands and Guam. Yahoo Finance) Its general merchandise retail stores are in 321 of the 331 Metropolitan Areas in the United States. The Company's stores are usually single floor, freestanding units, in sizes from 40,000 to 190,000 square feet. Kmart is the country's second-largest discounter after Wal-Mart stores nationwide. (Yahoo Finance) microenvironment is defined as the environment that is close to a firm, which affects the ability of the firm to serve its customers. (Dictionary of Business) The factors that make up this environment include; the firm itself, firms in its market channel, its competitors, and customer markets. Kmart's microenvironment includes the retailer Wal-mart and Target. A macroenvironment or the physical environment is characterized by cultural influences, demographics, economics, political beliefs and legal infrastructure. (Dictionary of Business) In most firms as is in Kmart's case many of these characteristics cannot be controlled by the company. The factor that Kmart has the most control over is the demographic areas that it chooses for its stores.

THE DIAGNOSIS

In January of 2002 Kmart filed for chapter 11 bankruptcy protections. This action by Kmart marked the largest retail bankruptcy in U.S. history. CNN reports,

Kmart, which has about $37 billion in annual revenue, said it had secured $2 billion in debtor financing to pay its $1.6 billion in debt and expected to emerge from bankruptcy in about a year. A company in Chapter 11 is protected from creditors while it reorganizes and tries to work out a plan to pay its debts." (Kmart files Chapter 11)

The bankruptcy filing came after Fleming Companies Inc., which is the retailer's largest food distributor, dissolved shipments to Kmart after failing to make payments to the distributor. According to CNN, this action by Fleming was apparently the breaking point for Kmart, which has grappled for months with lethargic sales and tough competition from Wal-Mart. In addition Kmart's credit ratings had been downgraded causing its stock to disintegrate.

Kmart files Chapter 11)

On March 8, 2002 Kmart Corporation closed 284 of its under performing stores as part of its Chapter 11 financial objectives review. The stores to be closed are 271 Kmart discount retail operations and 12 Kmart Supercenters in 40 states, and a Kmart in Puerto Rico. The closure of these stores is projected to enhance the Company's performance. (Kmart To Close 284 out of their over 2,100 Stores)

INTERVENTION AND IMPLEMENTATION

The changes that I would make would include a comprehensive 10-year plan to aid the company in gaining back financial stability. I would intervene at every level because that's what's needed to gain financial stability. The targets of change would be technology, store cleanliness and store image. I would hope these targets would bring about change that would increase sales and help the company out of the bind that it is in.

The first thing I would do is make sure that there are higher standards for the cleanliness of stores and that every product in the store is price and in the correct departments. There would be no trash and boxes lying around the store. This is a simple step that does not require vast amounts of money and could improve the overall environment of the stores so that people want to shop there. These standards would have a 90-day implementation period.

This plan would also include a new identity for Kmart that would separate the company from its competition. This new identity would be incorporated into every aspect of the business from the boardroom to the home and garden section. I would want the organization to embrace better quality goods and I would implement plans to make the whole persona of the store better.

In addition there would be an implementation of a new technology system that would track inventory from the time it enters the distribution center until the time that it is purchased. This would cut back on theft and ensure that planners know which products consumers are buying. In doing this the retailer can better serve the overall needs of its' customers.

The time frame that I would give the long-term plan is ten years. There would be certain amounts of time allotted for each phase of the plan. As mentioned before the step would be implemented within 90 days. The second step of creating a new image and higher quality product would have a four-year period of gradual implementation. Technology upgrades would have a two-year time period of implementation. For two years there would be an in-depth analysis of the changes and the effect that they have had on the company including sales and market share. The remaining two years would allot time for any changes that need to be made as a result of findings in the analysis.

EVALUATION anticipate that the changes that I have attempted to implement would help the organization reclaim its' financial stability and would be successful. For the short-term I anticipate that store traffic will increase by 12% within one year due to the newfound cleanliness of the stores. I predict that overall sales will have increased by 35% at the five-year mark. For the longer term I expect that Wal-Mart will still be the market leader but that Kmart's share of the market will be only 7.5% lower than Wal-Mart's because of the implementation of higher quality products. I would use the new technology that I have implemented to monitor store sales and customer traffic. I would involve store managers and employees in implementing the change.

Through the process of this discussion I found that it is very difficult to implement change. For one you have to study the organization carefully so that you know what changes to implement and then you must come up with a realistic plan that will bring about change to the organization. My analysis provides for a standard oriented structure within the organization and the standards for this structure rely heavily on the ability of managers to implement these plans.

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