Dr. Lloyd Steier

The recent demise of Eaton's marks a significant event in Canadian retailing and in the lives of many Canadians. Indeed the 130-year-old company was founded at nearly the same time as this country. Like most Canadians, I have my own personal memories of this once-great company. These memories range from growing up in Western Canada in the late '50s and '60s to having the opportunity, as a management scholar, to meet members of the Eaton family.

While I have shopped at major Eaton's stores across the country, my strongest memories are distinctly rural. The arrival of an Eaton's catalogue was a big event in our house, particularly the Christmas catalogue. My sister and I often spent the evening learning to "share" because we both wanted to read it at the same time. (Yes, my friends, you can "read" a catalogue!)

Items were circled. Dreams were cast. I also vividly remember the day my mother and I sent a catalogue order via the local post office for my first pieces of new hockey equipment: shin pads, gloves and a Toronto Maple Leafs' sweater. There followed an agonizing wait wherein I stopped at the post office every day after school to inquire about the order. The day the parcel finally arrived the postmaster, nearly as excited as I was, came out from behind his wicket to help open it. I recall my sister and her friends playing "paper dolls" for hours with images cut from pages of out-dated catalogues. I suspect we were like most folks-Eaton's provided a significant portion of our goods and services but the relationship somehow seemed to run deeper than that.

So what happened? Why did this once great firm fail? The discipline of strategic management and the related area of family business provide useful, albeit partial, insights.

Sustaining and passing on the entrepreneurial spirit from generationto generation is recognized as a universal problem

The field of strategic management emphasizes some fundamental questions: Who is our customer? What are our competitors up to? What business are we in? What changes are occurring in our macro or industry environment? Eaton's didn't do well at asking-or answering-these basic questions.

The 1990s witnessed massive changes in the competitive landscape of the retail sector: greater market segmentation, internationalization, advances in information processing, the Internet and new competitors in both the "boutique" and "big box" categories. Companies that once held "near monopolistic" positions in their markets, like Eaton's, sometimes find it difficult to recognize the need for change and adapt accordingly. It is well documented that, ironically, successful firms often fall victim to the "perils of excellence." Fundamentally this concept suggests past success leads to complacency, and a subsequent reluctance to reconfigure strategies, structures and systems more aligned with new realities- even though the firm is receiving clear signals changes may be necessary. This inaction leads to decline.

A brief look at a recent retailing success story, Wal-Mart, provides some answers to what went wrong for Eaton's. Wal-Mart was able to develop a most successful "strategic template." Some of Wal-Mart's key strategies include: low sales and administrative expenses, highly sophisticated information systems and "point of sale" inventory replacement systems, efficient distribution centres, locating in areas of customer demand, aggressive growth, international expansion, and huge volume purchases enabling "best prices" from suppliers. Most important, Wal-Mart knows whom its customers are and is able to give them what they want at reasonable prices.

In recent years Eaton's struggled to maintain a customer niche. While not all of Wal-Mart's strategies would have worked for Eaton's, significantly much of the information about what they were doing right was public domain yet Eaton's appeared to do little in way of response. Only in later years, when faced with significant losses, did Eaton's desperately try to recreate the firm. However, their efforts at strategic renewal could be characterized as "too little, too late." Sometimes they just plain got it wrong. They abandoned some product lines that turned out to be immensely profitable for competitors such as Sears. Early attempts at introducing complex information systems failed miserably. Attempts to move into more "trendy youth fashion lines" also failed to attract the desired customers, while at the same time alienating some of their older, more loyal customers.

Realities of the competitive environment dictate that department store retailing is a tough business to be in. The fact Eaton's was a family firm further complicated the challenge. While there are many advantages to operating as a family business (in reality it is a dominant organizational form world-wide), this approach to organizing enterprise has its own unique set of challenges. Sustaining and passing on the entrepreneurial spirit from generation to generation is recognized as a universal problem. Simply put, later generations often have a difficult time duplicating the drive, creativity and passion of the original entrepreneur. This dynamic also creates all kinds of interesting ironies. Returning to the Wal-Mart example, in the early 1960s Sam Walton was running a "five-and-dime" store in rural Arkansas while Eaton's was lauded as a retailing giant. Sam Walton's passion for retailing enabled him to create an incredibly large firm in a short period of time. Clearly the original Timothy Eaton had a passion for retailing akin to Sam Walton's. Subsequent generations found it difficult to sustain this passion.

The family business literature contains many scenarios of "build" or "destroy" within a single generation; however, the challenges are more than just keeping the entrepreneurial spirit alive. As these organizations grow and evolve into sibling partnerships and cousin confederations, the dynamics between ownership, management, and family issues become increasingly complex. The policy of keeping a family member as CEO or chair of the board allows for a very limited pool from which to choose top management. Anointing one family member over another can also lead to an interesting dynamic that can have long-term negative effects on the firm. On the other hand appointing an outsider to a key position has another special set of problems as ownership becomes increasingly removed from strategic control. Outside shareholders can further complicate decision-making. Ultimately, as the firm grows effective governance is a critical issue that is not easily resolved.

In summary, I lament the loss of Eaton's. My strongest memories of the firm in its heyday are of a different era: a time when nearly everyone relied on a relatively small number of retailers to provide their goods. Consumers now enjoy a wide variety of choices and nostalgia plays a very small role in consumer purchasing decisions.

I conclude with a line from the well-known Bob Dylan song of that earlier era: "The times they are a changing." Firms, and the people in them, need to change with the times. Sadly, Eaton's didn't change enough. Dr. Lloyd Steier is an associate professor in the Faculty of Business. He was recently appointed to a Professorship in Entrepreneurship and Family Enterprise.

Waking up Colombians to their violence key to reform

Country has been decaying for a century and impact is moving beyond its borders-to Ecuador

The recent kidnapping of seven Edmontonians in the oil-rich province of Sucumbíos, Ecuador bordering Colombia surprised many Albertans. To those familiar with Colombia and its recent history, the event followed a well-established and frightening pattern.

Dr. David Johnson

The roots of civil conflict and violence extend beyond the beginning of the drug trade-and not only to 1948, the year often cited in the media-when a popular leader was assassinated resulting in waves of sectarian violence, but further, at least to 1899. That year marked the start of the War of the Thousand Days, Colombia's bloodiest war since independence and the fifth costliest war in Latin American history. In spite of its theoretical democracy and relatively impressive economic record, which until last year had posted continued economic growth annually since 1932, Colombia has experienced the incremental growth of violence and social breakdown for a century.

Colombia is now the only Latin American country involved in civil war, a highly complex war where nearly forty million people, the third largest population in Latin America (after Brazil and Mexico), are subjected to a conflict between three guerrilla groups: the army, the national police, and the paramilitaries and the narco-traffickers. The cities are now islands of relative stability while people fear venturing into the countryside and the dangers are far worse for rural dwellers. One measure of the magnitude of the war is the number of people displaced from their homes, seeking refuge in the cities and beyond Colombia's borders: four per cent of the population which, if accurate, indicates up to two million people. A comparison to other areas of the world perhaps justifies a Miami Herald article entitled "The Kosovo Next Door." In 1998 there were 194 massacres which killed 1,231 rural Colombians, and these were distinct from the daily battles between military groups.

The abduction of the 12 foreigners in September must also be seen in the context that there are more kidnappings in Colombia than in all of Latin America combined. Since Jan. 1, 1996, 6,957 people have been taken and 1,854 remain in captivity. Worse yet, the trend has been accelerating: there were 1,600 abductions in 1998 and 1,862 as of Sept. 9 this year, indicating the total will be more than 2,000 by year's end. Subversive groups of both right and left are held responsible for about two-thirds of the total and the rest attributed to common criminality. Abduction of the rich has been a traditional way of financing war but has been exacerbated in the last year by the introduction of the "pesca milagrosa" or miraculous fishing, where cars and buses are stopped at random in the hopes of finding someone of value.

While often labeled political, many Colombians view kidnapping as "negocio," a business. The returns from ransom are only exceeded by revenues from drugs. This income has enabled the guerrilla to purchase weaponry which many claim is more sophisticated than what the army possesses.

A crucial factor in the war is the fantastic wealth of the narcotics business. Protection by the guerrilla or the paramilitaries in the zones under their control (about half of Colombia) has enabled them to expand production in spite of eradication efforts. While the FARC (Armed Revolutionary Forces of Colombia) claims they don't encourage the drug trade, no one believes them. This indicates a larger problem. As successful as they have been militarily, the guerrillas have failed ideologically at winning sympathy in the cities. The omnipresence of this war of multiple fronts has contributed to a generalized culture of violence in society at large. In recent years, Colombia has had nearly 30,000 homicides annually. This amounts to 80-90 per 100,000 inhabitants. This compares to the Canadian homicide rate of about 2 per 100,000 or the American rate of about 5 per 100,000.

The explanation of why Colombia has become such a violent place is the central question for the country's social scientists and is far too complex to answer in this short essay. Colombia has been a country rich in resources and opportunities but these have been denied to the majority of its citizens. Colombians have become inured to atrocities unimaginable to Canadians and thus the headline in the National Post at the time of President Pastrana's visit, "The Most Dangerous Nation on Earth."

Two years ago a noted Colombian brain surgeon captured the essence of the issue when he said, "The problem is that nada nos asombra (nothing astonishes us)." Believing TV viewers were no longer paying attention to the news, the government passed a law stating all stories on the war and violence would be broadcast in black and white in order to make people think. This means 70 per cent of the evening news is now broadcast in black and white.

After years of a relatively sound eco-nomy, in part stimulated by drug profits, Colombia this year has had to face recession with more than 20 per cent unemployment and a 29 per cent devaluation of the peso. International investors have lost faith and Standard and Poors has dropped Colombia's credit rating to B, down from A3. Many Colombian investors are now channeling their capital to Florida.

Finally, one must consider the enhanced involvement of the United States in Colombia. Stemming from its concern about the impact of cocaine and heroin in the United States and its preoccupation about the "Colombianization" of neighboring countries, the United States has not only expanded its anti-drug program but has been involved in the professionalization of the Colombian military. The August article by Secretary of State Madeleine Albright in the New York Times, the visits to Colombia of Barry McCaffery and other Clinton administration officials as well as President Pastrana's meeting with the American president, mark a major shift in U.S. policy. The problem is no longer perceived as solely drugs but rather of a "narco-guerrilla" which means a shift in the destination of American aid.

Given all of the above, it should no longer be a surprise that Sucumbíos province in Ecuador bordering FARC controlled territory has become a target. In the rapid changes of the last five years, Ecuadorians have felt their own injustices sharpened. With the development of petroleum, the area has become one of the most conflictive areas in the country. Apart from petroleum exploration, Sucumbíos has become a zone of arms smuggling, contraband and drug trafficking, attracting all the kinds of individuals associated with these activities. In short, whether or not the foreigners were kidnapped by the FARC or by Ecuadorean criminals, the pattern established on the Colombian side of the border is now a reality in Ecuador.

While visiting Colombia this summer I was struck by how much worse conditions had become in the year since I had last been there. Colombians from all walks of life expressed their revulsion at the war and violence, and there was widespread accord that it must end. Many people are now taking an activist position designed to bring pressure on the government, the guerrillas and the paramilitaries to establish peace.

Now they are astonished, and in this I found a cause for optimism.