Best Buy Strategic Analysis

The overall analysis of Bets Buy’s new strategy focusing on “customer-centricity” is leading the company in the right direction to grow competitively and profitably. Best Buy’s 2004 Financial Results (B: 3.0) demonstrate that since its implementation, profit margins have grown 2.3% from the prior year. However, there are intangible obstacles that hinder the execution of the strategy in the long-term, and give opportunity to growing competitors such as Wal-mart and Dell (A: 4.0) to replace Best Buy as a market leader in consumer electronics.

ISSUES

Strategic Decision-Making is in the Hands of Mid-level Managers and Sales Associates

With the implementation of customer-centricity, customer focus is regarded more highly among the value chain, giving lower-level employees more power in the profitability of operations. As it stands, lower-level employees will need to take on a higher-level of leadership (B: 4.8) and are expected to make strategic decisions in anticipation of customer buying behaviours (B: 4.1). The major issue among this new placement of responsibility is that store-level and field-level employees have little understanding of corporate objectives. Therefore, they are less likely to make decisions in the best interest of the organization (B: 4.1). There are currently no control measures put forth by Best Buy to ensure that there is goal congruency at the lower-levels with the company’s strategic objectives and financial objectives. The implications of this issue are extremely severe as lower-level employees have the autonomy to make decisions that may potentially drive down productivity and increase cost substantially. The latter is a detrimental issue because growing market leaders such as Wal-mart and Dell pride their reputation on being a low-cost provider; this is a competitive area that Best Buy may loose to in the long-term.

Corporate Culture is Complacent and Resistant to Change

Another prevalent issue is that Best Buy’s corporate culture has become complacent and its new strategy is faced with a degree of resistance (B: 4.2). A corporate culture resistant to change is unhealthy to the execution of this new strategy, as executives will be reluctant to implement ideas from mid-level managers and representatives at the store-level and field-level. This is a direct violation of the philosophy of customer-centricity. Although tensions among the executive level have eased slightly, there is still a cultural trait of resistance to change that must be eliminated. Profitable customer segments and behaviours will change over the years, and Best Buy’s executive team has to adapt to these changes quickly. Failure to adapt to customer segment changes under the new customer centricity strategy will result in a lesser competitive advantage and unprofitable earnings performance.

RECOMMENDATIONS

Training, Developing, and Providing the Resources to Capitalize on “Human Capital”

In order to execute customer-centricity to maximize its full potential of earnings, there needs to be more strategic importance placed on Best Buy’s human capital at the lower levels. Therefore, I recommend three critical initiatives; (1) Training Modules, (2) Retail Operation Evaluation Information Systems, and (3) Balance Scorecard. First, training at the store-level and field-level needs to be upgraded to ensure that decisions being made in the importance of customer segments are balanced with financial objectives. As a result, it is important to provide and train store-level and field-level mangers in key strategic financial measures. The measures most important at the lower levels are as followed; Return on Invested Capital (ROIC), Conversion Rate, Unit Sales/Customer, and Net Operating Profit after Tax (NPOAT) (B:1.4). A thorough understanding of these key financial measures will help guide the decision making process at the lower levels. However, it is not sufficient that employees are trained and are able to analyze strategic financial indicators, but the information must be provided to them promptly and consistently. This leads