Forget all that yammer in the newspapers about why Ward’s filed for bankruptcy last week. This isn’t one more story about market niches and retail strategies. It’s about the people we all love to hate: stubborn bosses who won’t change their minds. Montgomery Ward’s troubles today spring from its firm adherence to a bad idea decades ago. Ward’s cross-town Chicago rival, Sears, Roebuck, had a different idea. In 1946 Sears gambled its future and began a costly expansion into suburbia. Had another depression come, Sears would have been out on a limb. Instead, within a decade, Sears doubled its revenues while Ward’s stood still. Sears never looked back. Ward’s never caught up.
How could corporate planning go so wrong? The answer isn’t just that Ward’s made a mistake. Companies do that all the time. The real problem was that Ward’s stuck with its mistake. This, too, happens all the time, and the results can be disastrous. Barry Staw, a UC Berkeley professor of organizational behavior, has a term for the way companies march steadfastly off a cliff: escalation of commitment. ““Typically the leader is defensive and doesn’t want to hear that he might be wrong,’’ Staw says. ““Then comes a social process in which other people’s careers get staked to his course of action - even if it’s wrong, they think they have to defend it or they’ll lose their jobs. It’s like propping up a defunct government.''
Smart bosses smell trouble and change course. Bill Gates initially kept Microsoft on the sidelines of the Internet boom, but later refocused the entire company on the Web. And Coca-Cola is unfairly jeered for its humiliating launch of New Coke; what matters is that the company listened to its consumers and shrewdly bailed out of its own plan. Now consider Pan Am, so wedded to its heritage that it tackled financial problems by selling profitable real-estate holdings. ““What they were left with was this lousy airline - and then they had to sell off many of its best routes,’’ Staw says.
What’s amazing is that Ward’s stumbled so badly. This is the innovative company that invented the mail-order catalog and the money-back guarantee. Avery did a good job managing the company out of the Great Depression. He also amassed working capital of $607 million, earning Ward’s a dubious Wall Street nickname: ““the bank with the department-store front.’’ But Avery had learned the lessons of history too well. When urban and suburban America boomed, Ward’s was stuck with its dowdy ““green awning’’ stores in small towns nationwide. ““The talk at the top was that Avery planned to buy Sears for 10 cents on the dollar,’’ says a retired Ward’s executive who doesn’t want to be named. ““He had no faith in the country’s future. Of course he was completely wrong.''
Avery was forced out in 1955 after 24 years at the helm. But by then it was too late. Sears and JCPenney had snapped up the best real estate, much of it in shopping malls. Of course, Ward’s had its subsequent moments of vigor, and both of those rivals had plenty of problems later on. But they also had enough good locations to survive. Avery is most notorious for a 1944 photograph that shows him being hauled from his office for flouting a federal order in an obscure wartime labor dispute. But the conservative capitalist’s real legacy is the cost of his unwavering belief in his own vision.
It’s unclear whether the 125-year-old retailer can overcome its history. After all, Sears has managed to reverse its long-frumpy image with modernized stores, better service and fresh clothing lines, all aimed at selling women shoppers on the company’s ““softer side.’’ Under the forgiving rules of Chapter 11, Ward’s can more easily close many of its 408 stores. But other chains have beaten Ward’s to the best strategies, like focusing on high-profit apparel. A company that once braced for a disaster that never came must now confront one of its own making.
