Circuit City was recognised as one of the companies that grew from being good to big because of its culture and its outstanding business plan. In Good to Great by Jim Collins. There was significant and well-deserved appreciation for Circuit City. Circuit City’s growth and success were sharply opposed by the decline of Silo Stores during the same two-decade era. What happens to a great business which is gone now and what can we get from this chapter of the second largest electronics retail chain which is painfully important for the economic difficulties that lie ahead?
Many factors lead to any organization’s success or failure. Intense external market pressures can hinder profitability. The increase and decrease in consumer trust, investment and financial instability will generate huge obstacles. In the best strategy, rivalry and technical advances will lead to havoc. However, these considerations are to exactly the same degree faced by all businesses. It is not the challenge, but the answer to the challenge that is characteristic of an organization’s performance. Companies which kill the economic and competitive dragons will survive and prosper. Internal responses to external problems can often weaken and organisational infrastructure can crumble. Just think about that with the Circuit City example.
Circuit City extended the network of shops from coast to coast through the 1980’s and 1990’s. In order to reduce freight and inventory, this network of stores was sponsored by the logistics centres. This enhanced the ability of Circuit City to secure and protect product margins by reducing overhead and goods. The stores are linked by a thorough-structured technology nervous centre that allows retail retailers in consumer electronics to monitor loyal clients, recognise buying patterns and provide world-class customer service. With changing business dynamics, Circuit City Management has strategically adjusted its strategies to meet service demands, using its network of best-in-class service provider partners to serve its customers professionally and courteously. The partnership and the close-knit network represent a culture which made the retail kingdom versatile, profitable and thriving for two decades.
As in every major disaster, usually there is a crucial decision defining an empire’s fall. The decision to release the most paying sales workers from local stores is the most popular cause of the Circuit City situation. We would assume that this choice was based on the desire to minimise manpower costs efficiently while at the lowest possible price keeping the greatest number of bodies. It was unfair to specify what precisely the executives who drew on this proposal were thinking, but what the workers in local stores were thinking when the announcement was made public is not difficult to imagine. More tenured and seasoned were the highest paying workers. Some people might also argue that the most loyal workers are the most tenured, who choose to remain thick and thin at the retail business. These professional, efficient, well-paying and loyal workers have been cut off from Circuit City and rapidly become a wealth of talent for their competitors.
It seemed that this apparently negligible decision to ease the Circuit City radius by reducing the number of top shelf workers had an important effect on employee productivity, public perception and customer engagement. This act by Circuit City goes against the very heart of the community so highly praised in Good to Great. “Instead of fired honest, able people who have a bad result, it is necessary to try to take them one or two or even three times to other positions where they could flourish” Alan Wurtzel, former CEO of Circuit City, has written on the early success of Circuit City. Wurtzel recognised the value of preserving the truest competitive advantage and that is the only commodity that can truly transform industry. Circuit City eliminated many leading performers without an accurate review of the effects of the revenues without adequately assessing the financial impact of individual results and contributions. The sudden stir was not the unexpected throwaway of staff, but the associated evacuation. The much-loved retail empire never recovered from a bleeding of talented resources.
The supermarket giant considered errors, which were the fate of previous store chains, in the last month of the gradual decline. Following Montgomery Wards’ footsteps, proposals were suggested in which stores might be reinvented, the market would be copied and the retail space could be expanded. Discussions on merger or sale of Blockbuster supported a popular initiative. At the time, the market for downloadable movies via mail and video were risking Blockbuster. Contrary to Circuit City, Blockbuster chose strategic changes in order to use its own organization’s core assets with an emphasis on brands and organisations. Blockbuster chose not to take up Circuit City but instead revamped the market scheme focused on a brand, the corporate culture, core competencies and loyal customers already in existence. The choice of Blockbuster put the destiny of this organisation, instead of a wholesale change of direction, in the hands of loyal workers in order to introduce a gradual evolution of the business model. Circuit City has tumbled in the battle for the next course that never emerges without a Blockbuster partner on the dance card.
A few years before the disaster, a few hundred million dollars of retained income was announced by Circuit City. Circuit City should have reacted with greater dexterity to external economic pressure and maintained the competitive advantage of seasoned sales staff with necessary and versatile organizational changes. Circuit City could have reinvigorated a unique value proposition by fervently preserving the core competencies and culture around which the company has developed its success over 20 years and yet differentiating the brand with loyal customers and competitive advantage. The revenues would have been different if the experienced and highly performing sales experts had been retained by Circuit City. Perhaps the company’s objectives.
could be accomplished if clearly identified and the large staff was involved in the pursuit of these objectives.
Many businesses are similarly forced to balance internal costs with the mounting demands from external conditions and competition. It will take corporate adaptations and relocation of staff to cut costs. There are, of course, polite business words for redundancies, cuts, and staff elimination. Think above the bottom line, even though it is unavoidable until it happens. Consider carefully how individual contributors will assess the success and value of the company. Not only calculate workforce by wage costs but take into account the financial impact on sales. How much has been spent and what will the replacement costs be in the growth and experience of the workers concerned? How much does an individual contribute to your organization’s brand image, recognition and marketability? How does the individual contribute to the income? How does the individual contribute with leadership, encouragement, discipline, leadership, or specific skills to the organisation? How much does your contest pay for the staff you let go, and what would that cost you?
In appreciation of a subject that Jim Collins has described in Good to Great, the right people should take the bus and choose where to go. This means carefully choosing the right people to lead the company in periods of sustained growth. This means, in difficult times, to ensure that you keep the right people at the helm, even though you have to let certain people go. The incentive can be negative enough by the lay-off and restructuring, which adds mutual pressure and duties to those who also endure the losses of previous colleagues. Take into account all the financial impacts, not just the payroll, of such decisions. Know the effect as alternative financial indicators on clients, sales and business results. It can rely on the destiny of your business.