Failure Analysis/Change Strategy
Learning Team A
LDR/531 Organizational Leadership
October 21, 2014
Dr. Nancy Atkins
Failure and Change Strategy for a Business Circuit City was one of the top selling electronic retailers in the United States. The company was based out of Richmond, Virginia started by Samuel S. Wurtzel in 1949. Some say bad real estate deals, lack of focus on being the low cost seller, mistakes with its sales force and straying from its core led to their demise in 2009.
The success of Amazon has much to do with Jeff Bezos, the founder and Chief Executive Officer (CEO). His unique combination of character traits and business strategy has driven Amazon to the top of the online retail world. In 2011, Amazon.com was posting revenues of nearly $50 billion per year (Price III, 2013).
Part 1: Business Failure/Success Analysis
Circuit City Objective (Carolyn Whitaker)
Circuit City is dedicated to the highest quality of customer service which is done with the highest respect. With a highly praised customer service and satisfaction, it will improve our sales performance. For Circuit City to effectively sell products to customers, sales representatives will try to understand and fulfil the customers’ needs. With a highly trained team of associates, Circuit City will be successful in the long run.
Circuit City Vision/Mission Statement (Carolyn Whitaker)
Respect - “Our Associates are our greatest assets. We expect every Associate to demonstrate that they respect and value others for their efforts, their knowledge, and the diversity that they bring. Teach - We are a product of our experiences and those around us can benefit from our lessons learned. Pass on to others what you value and learn. Engage - What's in it for you? We foster an environment of engagement where associates are invested and involved in the future of the company. What you do matters. Simplify - Use your fresh perspective to look, ask, and learn. We never stop looking at the way we approach our business and ways to simplify processes. Maintain the highest integrity - We expect all of our associates to maintain the highest of ethical standards. Our integrity must never be compromised. Integrity is the foundation onto which all other values are placed."
Amazon Objective (Carolyn Whitaker) Amazon is committed to long-term growth based on consumer satisfaction and efficient corporate growth. (Carolyn Whitaker)
Amazon Vision/Mission Statement (Carolyn Whitaker)
Our vision is to be earth's most customer centric company; to build a place where people can come to find and discover anything they might want to buy online.
Our vision is to be earth's most customer centric company; to build a place where people can come to find and discover anything they might want to buy online.
Our vision is to be earth's most customer centric company; to build a place where people can come to find and discover anything they might want to buy online.
Our vision is to be earth's most customer centric company; to build a place where people can come to find and discover anything they might want to buy online.
Our vision is to be the earth’s most customer centric company; to build a place where people can come to find and discover anything they might want to buy online. (Carolyn Whitaker)
Business Failure Analysis (Jazmine Thompson)
By the year 2008, the nation’s bestselling electronic store filed for bankruptcy. Some accused it on the bad economy and the decline in purchaser spending. Analysts found that one of Circuit City biggest issue was bad management. The difficulties started with Circuit City failing to provide more convenient stores for its customers. For instance, it drove customers away to nearby locations such as Wal-Mart superstores with affordable prices. Next they stopped selling appliances because of slow sells. Circuit City also, passed over the opportunity on big in-store advancements with flourishing businesses such as Apple Inc.
Business Success Analysis (Jazmine Thompson)
Organizational Behavior Theories (Carolyn Whitaker)
When Circuit City fell, it was operating under the direction of CEO Richard Sharp. Sharp was busy concentrating on other things and lost focus on its core operations as a consumer electronics retailer. New business ventures excited him more instead of modifying his current workforce and continuing to grow and be a leader in the technological industry. The Leader-Member Exchange (LMX) Theory focuses on the amount of interaction between a leader and individual leader. It contends that the outcome of leadership is dependent upon how much interaction exists between the leader and the members (Yu & Liang, 2004). Sharp’s team believed in him but, he lacked focus and the inability to follow through on plans. He underestimated the change in consumer taste, the change in consumer buying patterns and he clearly underestimated the rapid rise of competitors.
In 1994, Jeff Bezos, founder and CEO of Amazon.com dreamed about books and created the “Earth’s Biggest Bookstore” (Kargar, 2004). He was working as a Vice President in a New York City hedge fund when one day he noticed internet usage was growing rapidly. He quit his job and moved to Seattle, WA to follow his dream of starting a company selling books online. The Goal Setting Theory involves establishing specific, measurable, achievable, realistic and time-targeted goals (Locke & Latham, 2002). Bezos set clear goals that he used for specific and measurable standards. Under his guidance, he has lead Amazon.com to become the largest retailer in the world with online books (Kargar, 2004).
Leadership Role, Management, Organizational Structure, Culture (Meredith Saunders)
Circuit city failed because it was too slow to react to a changing market. They underestimated their competitors, like Best Buy, and failed to hold on to its grip on the market share. The first mistake was CEO, Alan McCollough making the decision to discontinue the selling of appliances in 2000. Appliances accounted for 14 percent of Circuit City’s total sales and took up 20 percent of its selling space. This elimination had serious implications for the future of the national retailer. The decision to eliminate appliances from the stores resulted in the closing of six distribution centers and loss of 1,000 jobs.
Circuit City also operated in a commissioned sales force. 60 percent of the sales staff was paid on commission. This gave them a competitive advantage against competitors such as Best Buy. In 2003, due to falling sales and reduced profitability 3,900 sales staff were laid off and replaced with hourly employees.
In 2004, Circuit City tried to revamp and restructure its top management. In 2007, due to waning sales and earnings, they cut labor and fired 3,400 employees that they determined were overpaid. Circuit City replaced knowledgeable employees with people with less experience that they could hire paying the lowest wage possible.
All of these layoffs could not have been good for Circuit City’s organizational culture. Competitors like Best Buy and Costco were taking over the market. Circuit City was trying to use a business model of its founding father.
Amazon has found success by embracing the changing market. They started out selling books, and then went into selling used books. Next they started serving third party sellers. By partnering with other retailers that were competitors Amazon transformed from direct sales to a sales-and-service business model combining various sellers under one virtual covering and receiving commissions from the other companies' sales. They were able to keep their costs down by not having any brick and mortar and just being a virtual company. That has since changed with the opening of their fulfillment center.
This constant reinvention is what makes Amazon, a leading contender till this day. Amazon’s focus on customer service and innovation keeps it one step ahead of its competitors. CEO Jeff Bezos says "If you want to continuously revitalize the service that you offer to your customers, you cannot stop at what you are good at, you have to ask what your customers need and want, and then, no matter how hard it is, you better get good at those things." Johnson, M. (2010, April 12).
Part 2: Leading Organizational Change
Vital Areas for Change (Lorentee Crossley)
As the leader of this organization what will be the steps to prevent impending failures to this my company Circuit City. First and foremost I must analyze and determine the vital areas for change before Circuit City ends up being a business failure. First the leadership team and I should be thinking about future of the company what the consumer wants. I shall not have the corporation sit idle on ideas from 20 years ago, times do change and so shall we. Location, location, and location is what we need to look for prime time real estate. Making the design of the store more user friendly with bell and whistle, this gets customers eyes and ears popping. Even though the sales of appliance is sliding maybe narrow the selection because we want the traffic to come in to our establishment. Since the bells and whistle are going it will get customer to look at other items that we carry. We will go away with commission sales associates and make them hourly associates. Yes we might have to pay a heavier salary but have trained professionals that know the product which will help customers pick the correct product. When we see other companies make a change and it is successful we as a company need to immolate whatever process that are successful in our industry as soon as possible. Don’t let the new process or procedure get so far ahead of you that you will have to use extra capital to catch up.
Potential Barriers, Powers, and Political Issues (Lorentee Crossley) Old school thinking is something that will be a struggle to get people out of. This will always hurting the company because in our industry things change by the day. Convincing individuals that spending money on new property is a good thing. Getting the stockholders and stakeholders to buy in that money spent on real estate will be an investment. Stockholders could ultimately vote me out if they are not sold on my message. Another Barrier that I am going to have a difficulty with is getting the employees to buy into going from commission to salary. There is grave danger of employees taking their skill other places and perhaps earning a better living because I have to figure a way how to pay my professional employees what they are worth all at the same time but it has to be done. Finally I must not be afraid to use what is working for another company to make our company competitive. At some point in time we as a company will create an idea and other companies will piggy back of our company.
John Kotter’s 8-step plan (Lorentee Crossley) As an organization I will ask employees what they would like to see change as if they were customer walking into Circuit City. I will form a group that will lead the way to drive change from the lowest level to the highest level on a two to three year term. Let the employees input be heard and adhere to some of their ideas, empower the employees. Empowering the employees will give me lead way to change management plan for example letting them change the way their work environment looks. Possible when I explain that they will go from salary to hourly will understand the direction of the company already. I would put into place a list of short and long term goals for the company as a whole and individual stores. There will be a team built aside from Circuit City that will consistently evaluate the change of the company and the acceleration of change in the customer’s eyes.
Conclusion (Lorentee Crossley)
While there is no blue print for the success of a business, studying the failures of companies can eliminate some downfalls that could potentially happen. Circuit City was an electronic superstore which had no competition. In the year of 1987, Circuit City proceeds grasp a whopping $1 billion for the first time. Circuit City was thriving so well that they were at one point and time bigger than Wall Street (Eames, 2009). If the leadership team at Circuit City was not so arrogant they may still be the electronics selling leader still today.
References
Eames, D. (2009). Circuit City Six. Los Gatos, California: Smashwords.
Da, Y., & Liang, J. (2004). A new model for examining the leader - member exchange (LMX) theory. Human Resource Development International, 7(2), 251-264. Doi:10.1080/1367886042000243826
Johnson, Jay L.”Circuit City Recharged. (Circuit City Stores Inc.)”, Retail Merchandiser, Jan 2001 issue.
Johnson, M. (2010, April 12). Amazon's Smart Innovation Strategy. Retrieved October 17, 2014.
Kargar, J. (2004). Amazon.com in 2003. Arden: Jordan Whitney Enterprises, Inc. Retrieved from http://search.proquest.com/docview/216275314?accountid=458
Locke, E. A., & Latham, G. P. (2002). Building a practically useful theory of goal setting and task motivation: A 35-year odyssey. American Psychologist, 57(9), 705-717. doi:http://dx.doi.org/10.1037/0003-066X.57.9.705
Price III, R. A. (2013). Cash Flows at Amazon.com: Issues in Accounting Education, 28(2), 353-374. doi:10.2308/iace-50182
