Reference no: EM132094287

Apply the knowledge of Management presented in this chapter to the following case. Applying this knowledge should enable you to have a better understanding of what is going on at Best Buy.

Read the case below and answer the questions on the right.

The Internet of things affects all of our lives, particularly when it comes to online shopping. This trend in turn has put great pressure on big box retail stores like Best Buy to compete with the likes of Amazon.com. Best Buy has had a hard time competing against Amazon for several reasons.

Amazon had a price advantage because it did not charge sales tax from customers in a number of states. For example, in 2012, Amazon collected sales tax from about 40% of its customers. In 2015, it was 89%. Amazon also has many strategically located distribution centers across the U.S. that permit it to ship its many products in a timely fashion. Amazon also had a deep supply of products to draw from, enabling shoppers to pretty much get what they want, when they want it. All told, the advent of online shopping has put revenue and cost pressure on Best Buy to survive.

In conjunction with these competitive pressures, Best Buy experienced several key leadership challenges. In April 2012, the CEO, Brian Dunn, resigned amid claims that he had an inappropriate relationship with a female employee. While the board of directors investigated this allegation, it learned that Best Buy’s founder and chairman, Richard Schulze, knew about the relationship for some time. This led to Schulze’s resignation. But he did not go quietly. Schulze responded with an unsolicited bid to take the company private.64

According to one business writer, Best Buy had additional problems because “its stores had gotten dingy, populated by a shrinking sales force seemingly interested more in selling customers overpriced extended warranties than in steering them to the most suitable merchandise. The locations seemed destined to serve as ‘showrooms’ where customers would sample their wares hands-on before going home to order from Amazon.”65

Enter French-born Hubert Joly as the new CEO in September 2012. Although he had no retail experience, he was motivated to institute change within the company. “This is the most dysfunctional organization I’ve ever seen,” he told the board. “But this is good news because this is self-inflicted, and so this is something we can correct.”66 Joly started his transformation of the company using a strategy labeled "Renew Blue."

The turnaround strategy was based on an extensive diagnosis of the situation.67 To help in this pursuit, he hired Sharon McCollam as chief financial officer in December 2012. Her experience at retailer Williams-Sonoma helped Joly to diagnose problems and implement solutions. Before accepting the job, for example, she visited 75 stores to help determine the magnitude of changes needed for the company’s turnaround. Since being hired, she has “implemented a rigorous budget; overhauled Best Buy’s IT, supply chain, and logistics; and even inspected stores with a ‘white glove’ dust test."68

McCollam also uncovered bloating expenses that did not directly improve sales. For example, she dropped the private jets, trips to the World Economic Forum, NASCAR sponsorships, and Super Bowl ads. She also looked for small ways to cut costs. Corie Barry, chief strategic growth officer, described McCollam’s approach as “I don’t need you to go find the million-dollar idea—I’d love for you to go find the $10,000 idea.”69

McCollam also changed Best Buys’s no-questions-asked remote-work policy in 2013. This policy allowed employees to work from home as long as they completed their work. McCollam believed that this policy negatively impacted performance. She wanted employees to return to working on-site.

As expected, the company has had significant layoffs since 2012: Peak employment was about 180,000 and currently numbers around 125,000. To offset this loss of employees, Joly implemented employee empowerment at all organizational levels. He believed that this management practice enabled employees to make better and timelier decisions at the point of customer interactions. The improvement in sales results suggest that Joly was accurate.

The strategy of "Renew Blue" included several tactics aimed at overcoming the strengths held by competitors such as Amazon. One amounted to increased investment in the stores. They were redesigned to be roomier, airier, and staffed with well-trained employees. The strategy also included the decision to institute a “price-match” policy. This policy promised to match the prices offered by Amazon and 18 other retailing websites.70 Another key tactic focused on online shipping, a key competitive advantage held by Amazon. Best Buy committed to increasing its ability to ship products directly from stores to its online customers. This led to more in-store purchases because customers knew that they would not get a better price at Amazon. It also produced more online purchases from Best Buy’s website.

Best Buy also used sales performance data to develop methods for improving in-store employee performance. The approach, developed by Chris Schmidt, begins with a spreadsheet that tracks the performance metrics that are important to Best Buy. The data are then used to spot employees who need further training, “perhaps they needed extra training on ‘smart’ 4K TVs, or tips on conversation openers that wouldn’t scare off customers,” says Schmidt. Schmidt concluded that “even tiny bits of movement yield massive amounts of return,” resulting in increased sales and income for employees.71

What is the end result of the changes taking place at Best Buy? Here is what one stock analyst had to say about the company’s performance at the start of 2016: “We believe the company has performed better than the industry in several other segments of its business and is on track for improved profitability in the long term, as it continues implementation of its ‘Renew Blue’ transformation program."72

1. Which of the following is not a reason Best Buy has had a hard time competing with Amazon?

A. Best Buy has faced some key leadership challenges.

B. Amazon has a deep supply of products to draw from.

C. Amazon has many strategically located distribution centers across the United States.

D. Amazon does not have to charge sales tax from customers in a number of states.

E. Best Buy decided to bring in Hubert Joly as CEO to replace Brian Dunn.

2. Best Buy uses sales-performance data to develop methods for improving in-store employee performance. This is an example of following the _______________ viewpoint of management.

A. Behavioral

B. Classical

C. Systems

D. Quality-Management

E. Contingency

3. As part of the “Renew Blue” strategy, Best Buy committed to increasing its ability to ship products directly from stores to its online customers. Based on Figure 2.4, this reflects which part of a system?

A. Feedback

B. Transformational processes

C. Logistics

D. Outputs

E. Inputs

4. As part of the “Renew Blue” strategy, Best Buy increased its investment in stores and redesigned them to be roomier, airier and staffed with well-trained employees. This is an example of sound ______________ practices.

A. quality control

B. operations management

C. evidence-based management

D. administrative management

e. human relations

5. CEO Hubert Joly implemented employee empowerment at all organizational levels. He believed that this management practice enabled employees to make better and timelier decisions at the point of customer interactions. Which of the following concepts best supports Joly’s decision?

A. management science

B. quality control

C. operations management

D. administrative management

E. human relations movement