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Best Buy … The Best House on a Bad Block
The title of this case is the way some analysts characterized Best Buy’s position in the retail electronics industry—the best big-box retailer in a shrinking business. Hubert Joly, Best Buy’s CEO, seemed to agree when he said the following just after taking the job: “This is the most dysfunctional organization I’ve ever seen… But this is good news because this is self-inflicted, and so this is something we can correct.”82 The company was indeed in dire straits. The key performance metrics for most retailers—same-store sales and profit margins—had been declining over a period of time.83
Causes of Pain
The electronics industry had been contracting and fragmenting for a number of years, and brick-and-mortar retailers were ever more tightly squeezed by online providers. Amazon and Walmart in particular were taking an increasing share of business from everyone in the electronics market. All this led Best Buy’s three closest store-based competitors to go out of business—Circuit City, CompUSA, and RadioShack. Having fewer competitors might be a good thing, but it just reinforced the shrinking nature of the industry.84
Best Buy also confronted internal forces that were driving change. The previous CEO, Brian Dunn, was forced to resign after having an inappropriate relationship with an employee, and founder Richard Schulze had made an unsolicited attempt to buy the company and take it private. Leadership was in disarray. The board of directors had allowed ineffective if not unethical conduct to continue, from the executive level to the store level, further eroding Best Buy’s performance and reputation.85
What remained in 2012 was a company with lower revenues, uninspiring product displays, dirty restrooms, and lapsed maintenance, because it had run low on cash and management had focused its attention elsewhere. However, the company still paid for private jets, trips to the World Economic Forum in Davos, Switzerland, sponsorship of NASCAR and the Super Bowl, and color printers at headquarters.86
Customers, Employees, and Vendors
Customer preferences for products, price, and location had changed, and Best Buy no longer measured up. Some customers had poor customer service experiences with the company, and prices were not competitive. The online store was unreliable, with inaccurate stock information, and online orders took days or even weeks to arrive because they shipped from centralized distribution centers even if a nearby store had the needed item in stock. Many shoppers saw no real value in actually purchasing from the store. Instead they went to learn about and view the product they wanted and returned home to purchase it online from another source (often Amazon).87
When Sharon McCollam, the new CFO hired by Joly, attended her first staff meeting, the room was half-empty. Many of her corporate-based direct reports worked from home, and on any given day 20 to 35 percent of corporate employees were absent. Decision making was bureaucratic and slowed by multiple layers of management. Also notable was the amount of e-mail clutter received by store managers; they were barraged with reminders of the latest program from corporate. Store-level employees were confused about which activities they should prioritize: Was it getting more credit card sign-ups, selling extended-service policies, or reminding customers about the Geek Squad (Best Buy’s in-home tech experts)? Shari Ballard, the US retail president, wanted every store employee to know and focus on revenue per hour. And yet, despite all the data the company possessed, it didn’t know what distinguished top-performing employees and top-performing stores from the rest.88
Last but not least, Best Buy had less-than-productive relationships with manufacturers and vendors. Apple, for instance, had its own retail stores and also sold its products online. However, it also wanted other retailers, including Best Buy, to sell Apple products. But at the time Joly took over, the relationship between the two companies was not nearly as strong as it could be. The same could be said of Samsung. It’s one of the world’s largest electronics manufacturers, yet by its own estimate Best Buy was not meeting its potential as a retail channel for Samsung’s products. Employees did not have sufficient knowledge about different suppliers’ products, the products were not well distinguished from one another, and in-store displays and marketing were insufficient.
Assume you are Hubert Joly and have just taken the CEO job. Use the 3-Step Problem-Solving Approach to identify the problems and their causes, and formulate the actions you’d take.
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