best buy co., inc.: customer-centricity · 2019-01-29 · customer driven,” was convinced that...

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________________________________________________________________________________________________________________ Professor Rajiv Lal with Executive Director Carin-Isabel Knoop and Research Associate Irina Tarsis, both from the Global Research Group, prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2006 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

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Best Buy Co., Inc.: Customer-Centricity

Over the years, our most significant advances as a company generally have resulted from periods of stress. . . . Today, in contrast, we are transforming the company despite being at the top of our game.

— Brad Anderson, Vice Chairman and CEO1

Sometimes it’s painful to be on the cutting edge. — Matt Monroe, Best Buy Store General Manager, Natick, Massachusetts

With fiscal year 2005 sales of $27.3 billion, Richfield, Minnesota-based Best Buy Co., Inc. was the leading retailer of consumer electronics, home-office products, and related services in North America; its operations included the distinct store formats Best Buy, Future Shop in Canada, and Magnolia Audio Video as well as service provider Geek Squad. For the eight years leading to 2004, Best Buy had reported double-digit revenue growth each and every year and rarely missed earnings.

But on December 13, 2005, Best Buy missed its third-quarter earnings per share (coming in at $0.28, not $0.30).2 The company’s stock price fell nearly 12% that day, a loss of $2 billion in market capitalization. (See Exhibit 1 for financials and Exhibit 2 for stock price history.)3 The poor results were attributed to the aggressive rollout of 144 new “centricity” stores—revamped retail formats featuring a customer-centric operating model and designed to offer targeted “value propositions” to one or two distinct customer segments. The new format was a departure from Best Buy’s winning formula and required adjustments in interactions among various parts of the Best Buy organization, including a new set of segment leaders.

CEO Brad Anderson, the driving force behind the move to make Best Buy “talent powered and customer driven,” was convinced that customer-centricity was imperative for the company’s future. He saw Best Buy, with nearly 120,000 employees, as a mature retailer headed for a slow decline unless it reengaged with its customer base. Reflecting upon the third-quarter results, the corporate team admitted that they did not fully understand why the last set of “centricity” stores had not fared as well as the pilot ones. Was it a function of poor execution, a flawed model, or just a lag between implementation and results? To get to the root of the problem would require a review of the pace of store conversions, the labor model, and the expense structure. How well did the company implement customer-centricity? Who was in charge of the new strategy, and who should have been? As he faced the dual dilemma of showing immediate results while changing his organization and developing

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506-055 Best Buy Co., Inc.: Customer-Centricity

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new skills, Anderson noted that the customer-centric strategy was “different enough that it could not withstand failure to financially perform for an extended period of time.”

Company Background

Best Buy grew from a single high-quality audio electronics store, Sound of Music, established in 1966 by Richard M. Schulze in St. Paul, Minnesota. Schulze used radio advertising and outdoor displays to lure his initial targets: 18- to 25-year-old male shoppers interested in technology. The customer base grew as the product mix expanded and technology began playing a greater role in everyday life. In 1970, Sound of Music revenues reached $1 million. In 1973, a music buff, Brad Anderson, joined the three-man store as a commissioned salesman. Living in a mobile home after attending a Lutheran seminary, he took the store job seriously only after making his first sales; from then on he became addicted to sales.4 Around this time, Sound of Music started acquiring other electronic stores in the Twin Cities suburbs; by 1978 it had stores in nine locations.

After a tornado tore through Sound of Music’s flagship store in 1981, Anderson and his colleagues sold off damaged inventory at a bargain “best buy” sale that was very successful and led to a new corporate name. However, by then, the company’s margins had started to erode as the audio market matured. To compensate, Best Buy began opening superstores with an expanded product line that included audio and video equipment, cameras, microwaves, and large appliances. In 1989, as competitors such as Circuit City (founded in 1949) mimicked the superstore model, Best Buy introduced a self-service, value-store concept.5 Staffed with a salaried sales force to provide a pressure-free shopping experience, the new model propelled Best Buy into the second-largest electronics retailer position behind Circuit City.

Expansion

By 1995, Best Buy was opening on average 35 new stores annually and had emerged as the top retailer of PCs to home users.6 Best Buy’s rapid expansion was enabled by an encyclopedia of sales rules that went under the acronym of “SOP,” or standard operating platform. Conceived in the mid-1990s, the 200-page SOP manual included procedures for virtually everything that happened in a Best Buy store, ranging from inventory management to customer relations, store administration, and product sales and services. Its aim was to ensure uniformity of service across the network and help train a predominantly part-time sales force. “If you wanted to brush your teeth right now, we’d have a protocol for that,” joked Brian Dunn, president of retail, North America, who joined the company in 1985.7

As its consumer base continued to evolve from informed customers to technological novices, Best Buy installed information kiosks and populated the sales floor with highly trained service staff. To cater better to such customers, Best Buy in 2001 acquired Seattle-based Magnolia Hi-Fi, Inc., a high-end audio and video products retailer; in 2002, Best Buy expanded abroad, acquiring a Canadian electronic retail chain, Future Shop Ltd. Three years later Best Buy integrated 20 Magnolia centers into the U.S. Best Buy stores and operated over 100 Future Shop stores and 30 Canadian Best Buy stores, in every Canadian province (see Exhibit 3 for retail square footage data).8 Between 1998 and 2002, company revenues rose from $8.3 billion to $19.6 billion, gross margin hovered around 25%, and the company’s stock outperformed that of its peers.9 As of November 26, 2005, Best Buy Co., Inc. operated 796 Best Buy stores in the United States, 119 Future Shop locations, 43 Best Buy stores in Canada, 20 stand-alone Magnolia Audio Video stores, 13 stand-alone Geek Squad outlets in the United States, and four stand-alone Geek Squad outlets in Canada.10



Best Buy Co., Inc.: Customer-Centricity 506-055

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Much of Best Buy’s success was attributed to skillful merchandising and marketing. However, its blue shirt and khaki-clad sales force (“Blue Shirts”) provided the key competitive advantage. Blue Shirts were trained, motivated, rewarded, monitored, and measured every hour the stores were open. At many locations around the country, the sales teams started their day with the “7–3–1”—a corporate cheer that began by people slightly bending forward, slapping their thighs seven times, clapping their hands seven times, then rising up, clenching their fists in the air and bellowing “Best!” Three more slaps on the thighs, three claps—“Buy!” Then one slap, one clap, and “Best Buy, Best Buy, whoa, Best Buy!” And the encore, “Best Buy . . . Wooo!”11 To foster team spirit and boost employee retention, in some stores, when a sale was made, a “five-clapper” would occur, five staccato claps from the general manager (store manager or GM) and whoever else was in the vicinity. Some GMs yelled “Boom” or sang Elvis tunes over the intercom to acknowledge large sales. Sometimes good work was rewarded on the spot with $50 restaurant vouchers, a generous incentive to a high schooler working part time for $8 an hour, or even to full timers making $20 an hour. Blue Shirts could also buy company stock at a discount. Supervisors’ bonuses were tied to annual departmental and store performance, along with performance during big sales seasons.

Controlled Revolution

Anderson took over as CEO in mid-2002 after 11 years as president and chief operating officer.12 Despite previous stellar performance, he worried that “Best Buy’s competitive advantage was fading vis-à-vis mass merchandisers such as Wal-Mart or Target, and online retailers such as Amazon.com and Dell.” In the past, the competition targeted mainly price-conscious customers, without providing extra support or services; however, in 2003, Wal-Mart began to push into the higher-end consumer electronics that had been Best Buy’s most lucrative domain, and Dell was bringing its highly successful direct-sales model to bear, selling everything from MP3 players to flat-panel TVs along with its portfolio of brand computers. Competitors imitated many elements of Best Buy’s strategy, including remodeling of displays, cutting down on back-room storage, and poaching well-trained Best Buy salespeople. (See Exhibit 4a and Exhibit 4b for an overview of the competition.)

Despite the rise of these formats, Best Buy’s main direct competitor remained Circuit City. With more than 600 stores in the United States and Canada and online sales, Circuit City offered a similar array of products, including home-office electronics, entertainment systems, and peripherals such as mobile computing devices, telephones, and video games.13 Just as Best Buy had adopted Circuit City’s superstore format in the mid-1980s, Circuit City had copied some of Best Buy’s tactics, including staffing model and merchandising decisions. Nevertheless, in 2004, Best Buy’s sales per square foot were still double those of Circuit City.

Meanwhile, consumers were changing again, putting more emphasis on service and support and less on the technical aspect of products. While most electronics were getting easier to use, their interaction required specific knowledge that only a fraction of the client base possessed. In addition, Best Buy research found that about a third of its store visitors left dissatisfied, in part because the store’s broad focus did not meet their individual needs.14 Since the “one style fits all” approach was no longer valid, Best Buy determined to understand what individuals sought. “We have to shift our focus from products to customers and redefine our value proposition,” the new CEO explained. Anderson’s executive team identified and pursued four pivotal strategic initiatives: “customer-centricity,” “efficient enterprise,” “win with service,” and “win in entertainment.” Of these, customer-centricity was deemed the most important.




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Toward Customer-Centricity

U.S Best Buy stores sold items in four product categories: consumer electronics, home office, entertainment software, and appliances (see Table A).15

Table A U.S. Best Buy Revenue by Product Group (% of total revenue)

Product Group FY05 FY04 FY03 Consumer Electronics 38% 37% 37% Home Office 34% 34% 34% Entertainment Software 22% 23% 23% Appliances 6% 6% 6%

Source: www.bestbuy.com, accessed February 4, 2006.

Part of Best Buy’s success came from offering a broad selection of name-brand products

purchased by the company at a significant discount due to its sales volume. The five main suppliers were Sony, Hewlett-Packard, Toshiba, eMachines, and Samsung, representing nearly 33% of the total merchandise offered.16

To remain the leading consumer electronics retailer in the United States, Best Buy had to sell more high-margin products and services or add more stores; however, growth through new store openings was unsustainable as the company neared market saturation with 1,000 stores in the United States. Studies had shown that the economic value added by a new store peaked after six or eight years.17 Another option was to sell more to existing customers by developing a better understanding of their requirements and by lavishing them with attention, service, and know-how.

Best Buy determined that 20% of its customers (“angels”) accounted for up to 80% of sales by purchasing high-definition TVs and newly released DVDs without waiting for markdowns or rebates.18 “Devils,” in contrast, were high-maintenance bargain shoppers who asked for price matching, returned purchases, and bought items with returned-merchandise discounts. Anderson believed that Best Buy would be better off if it could focus on the most profitable segments and deter unprofitable shoppers (about 20% of its customer visits were unprofitable).19

Best Buy invited a group of consultants to help foster an “innovation culture” that would enable the firm to identify and better serve its most profitable customers. The formulation of the customer-centric strategy came on the heels of this work. Launched in May 2003, the strategy was designed to encourage employees to think and behave as owners and to engage with customers to meet their unique needs.20 By connecting with customers, offering them a broader assortment and shopping assistance, Anderson expected to build loyalty with profitable segments and leverage the company’s existing assets. It was evident to Anderson that Best Buy’s key competitive advantage was “owning the last 10 feet to the customer.” The only question was how this could be leveraged.

The customer-centric model operated under the assumption that Best Buy was servicing five major segments that together accounted for 50% to 90% of total revenue (see Exhibit 5). Identified by shoppers’ demographics, behaviors, and attitudes, each category was assigned a name. For example, the segment named Barry referred to affluent professional males of 50 years and older. Customers in this segment tended to be very profitable. Female shoppers were separated into categories depending on their age and family status (no children, with children, older children out of the house, i.e., empty nesters). Male shoppers were distinguished by income (ability to purchase), affinity to explore




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technology (attitude), and types of items they purchased. A separate category was assigned to target small businesses. Each segment was run by a segment leader whose responsibility was to deeply understand his or her segment’s shopping behavior and attitude (see Exhibit 6).

The idea behind customer-centricity was to become the customer’s “smart friend” and provide a “complete solution.”21 Managers believed that Best Buy could fully capitalize on the dominating trend transforming consumer electronics, namely convergence, only by focusing its sales staff on providing such solutions. This required salespeople who could demystify the benefits of a wireless home network, sell customers on the joys of watching a plasma-screen TV, and convince novices of the benefits from bundling hardware and accessories with software and services such as Netflix.22 Sales associates were continuously trained online or at weekend meetings on the technology and bundling options. “Selling a solution versus selling a single item is like the difference between a lay-up and a three-pointer in basketball,” one salesperson explained. “It’s all about maximizing the score.”23

In launching customer-centricity, Anderson used an “autocratic set of power tools” and expected swift support from his top team to execute his vision. Customer-centricity was a “top-down” strategy that required the stores, the buyers, and the segment organization to work together as never before. At times, in his role of a “customer-centricity cheerleader,” Anderson had “to be a cheerleader with a baseball bat.”24 To Dunn, the challenge of instilling customer-centricity in the company was akin to reengineering “a race car going around the track at 200 miles an hour. . . . People’s fingers get hurt in that kind of scenario.”

Customer-Centricity in Practice

To test the first version of customer-centricity, the company set up 12 “laboratory stores,” subsequently rolling out tested concepts in 32 pilot stores, most of them in California. The conversion to a centricity model involved changes in merchandizing, service, and infrastructure renovations (such as installation of elaborate home-theater displays). The primary investment was in the labor model; it involved adding specialized positions, such as Geek Squad agents, home-theater installers, and personal shopping assistants.25 The model also required extensive training on the customer segments, to recognize and think about the varying needs of different types of customers and to identify customers most likely to buy the packages from particular product domains. Blue Shirts were expected to begin practicing the right behavior ahead of any physical changes to the store floor by doing “psyche walks” (see Exhibit 7a and Exhibit 7b). The staff had to be able to decide best practice in the moment and be flawless in that execution, explained Tina Decker, senior vice president of HR: “We cannot train all our people to do this, but I do believe that it is a skill that can be taught.”

When pilot stores reported performance gains in comparable-store sales double those of other U.S. Best Buy stores and a gross profit rate higher by about 0.5% of revenue, the company began rolling out its customer-centricity initiative to an additional 110 stores nationwide. 26

Bringing it All Together

In some instances customer-centricity enabled Best Buy to leverage prior acquisitions, such as Magnolia and Geek Squad. For example, the Barry segment was intensely interested in the benefits of technology and had the discretionary income to be early adopters, and the Magnolia Audio Video room, with a top-of-the-line selection of home-theater electronics and furniture, was a perfect tool to serve this customer group. Luckily, Best Buy’s acquisition of Magnolia Hi-Fi, Inc. provided access to




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an upscale merchandise mix. Previously, Anderson recalled, “We could get virtually no suppliers of high-end equipment to let Best Buy sell their products.” At one point, he and the son of Magnolia Hi-Fi’s founder observed as customers walked back and forth between a Magnolia and a Best Buy store about 200 yards apart. Anderson thought it would make sense to join the stores. When the idea was tested, results “just hit the ball out of the park right away.”

Renamed Magnolia Audio Video, the new store within a store offered two product groups—consumer electronics and home-office equipment—and appealed to the Barry segment and to the Jill segment, which described affluent women with kids who wanted to control their children’s entertainment (see Exhibit 8). While home-theater sales to the Barry segment tended to focus on the technology, in a Jill sales team, a segment team leader explained, “We would talk about the home-theater experience. When you inspire her with the time-saving value it has in her home, offer a trendy presentation and design that she did not think would inspire her, she will buy it without her husband’s approval. We show store managers how to do a display that might appeal to her.”

Stores offering this package were well staffed with commissioned sales personnel, sales support staff, mobile electronics installers, and two or three managers—a store manager, an audio/video sales manager, and a mobile electronics sales manager. While Magnolia occupied less than 1% of Best Buy’s total retail square footage, it generated average revenue of about $6.9 million per store. By the end of 2006, Best Buy expected to have at least 100 stores with a Magnolia module.

Geek Squad

Store operations changed by making more referrals to other service groups. For example, Geek Squad service was envisioned as a valuable support for small business and was well suited to assist the Best Buy for Business (BB4B) segment (see Exhibit 9). Best Buy acquired Geek Squad, Inc., a residential and commercial computer support service, in 2003 to provide 24-hour computer installation and repair services. With 7,000 agents, by 2005 Geek Squad was available through every U.S. and Canadian Best Buy store, providing valuable loyalty-building service to customers both in the stores and at home. Best Buy planned to add another 5,000 agents in fiscal 2006 and expand their services to network installation and server maintenance.27 The wide popularity of this service instigated a discussion of dispatching similar service support teams for Best Buy’s home-theater installation business.28

Before customer-centricity, customers seeking particular products were simply told where to find them on the shelf and left alone. Under customer-centricity, Blue Shirts were encouraged to determine the ultimate use of the product, for example a PC. If it were for business use, the customer would be introduced to a Geek Squad representative who would help the customer with the optimal configuration and explain the benefits of other peripherals, such as printers, a high-speed Internet connection, and so on.

In another illustration, a manager reported how Will, a 19-year-old car audio installer, had harnessed the possibilities of customer-centricity when a customer came in to have a global positioning system (GPS) installed. Will noticed that the car was full of PC equipment and that the stereo, purchased at a Best Buy competitor, was not working properly. Apparently the customer worked out of his car. Will tweaked the car radio and sought out a Geek Squad partner who found a way to put the equipment in the car trunk. In the past, the customer would have just gotten his GPS installed. “And he may or may not have ever come back,” the manager continued, “but he certainly wouldn’t have the relationship with Will he has today.”




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Frontline Decisions

Customer-centricity called for empowering sales associates to make merchandizing decisions.29 In the standard-operating-platform world, for example, displays at the end of rows close to the store entrance had been centrally decided and identical across the nation. Customer-centricity implied associates could move items around if they felt that doing so would help them sell better. Associates were trained to approach problems using the scientific method: form a hypothesis about customer behavior, create an experiment to test it, and examine the results so they could implement new ideas. “A lot of our employees are high-school students, or people usually without advanced education,” explained Anderson, “so we started teaching employees the basic financial foundation to the business.” The point was to make them aware of the impact of decisions within their purview. “There’s space for them to think differently,” a GM explained. For example, in Pasadena in 2005, store-level associates had suggested a reconfiguration of the store to better appeal to suburban moms, moving small appliances down onto lower racks along the store’s main walkway, rather than leaving them stocked on higher shelves among the major appliances. Within a few months, sales of small appliances recorded double-digit gains. The employees then planned to create displays that showcased items such as refrigerators, stoves, and washers and dryers in homelike settings along the perimeter of the appliance department and to create a child play area.30

Customer-centricity had also empowered the stores to tailor their marketing communications to new ethnic groups. For example, in certain areas heavily populated by Vietnamese-Americans, Best Buy could opt to run ads in Vietnamese in the local newspapers or add Vietnamese-speaking salespeople to work the floor. “The intent was initially that most of the innovation will come out of the stuff that the stores can do pretty much on their own with variables that they control within the context of the store itself,” Anderson explained. “If they’ve got a chance to substantiate their hypothesis, they can move that test into other stores, and if they get enough momentum underneath that they can make it as a general recommendation for the enterprise.”

The Stores

By 2005, Best Buy operated over 900 stores across the United States and Canada.31 U.S. Best Buy stores were organized into 70 districts in eight territories. District managers oversaw GMs who traditionally had been responsible for executing against the SOP but had limited say in merchandizing and pricing. Only top-performing stores were selected for centricity conversion. “To be a successful store in centricity,” Dunn explained, “you have to have the basics almost flawless. So you’ve got to have leadership in place, you’ve got to have talent in place, and you have to know your SOP and be world class in execution.”

To introduce customer-centricity in the stores, segment leaders worked with merchants and store organizations to identify those stores that could benefit most from a particular value proposition. The individual store managers and their respective district managers were then approached with the results of the lab stores.

Depending on the region, individual stores intended for centricity conversion focused on one or two major segments. Some segments could coexist in one store, and some could not. While it was more cost-effective to combine segments in each store, GMs had to be careful to grasp the core differences between various demographic needs to avoid alienating any customer segment. The Jill segment, for example—targeting an affluent woman with kids who wanted to control her children’s entertainment—could not be coupled with a Buzz segment seeking high-energy, loud, exciting, mature-rated games. On the other hand, Jill and Barry segments could work together, just as Barry




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and BB4B could. GMs could target no more than two segments in one store, so there was a codependence between assortment choices. Each converted store reported daily sales by segment.

To make any value proposition work, it was up to the store manager to execute the value proposition. Without overspending on labor, the store manager had to be able to justify a certain amount of sales force on the floor. The questions Dunn believed good managers posed were, “How many folks can I afford to have on the floor? When should I have them on the floor? How many installers can I afford? How much do I need to generate for every dollar I invest to get over the hard times? You could take it all the way out on everything from how much local promoting can I do, can I afford to send one of my home-theater pros out to call on a couple of restaurants that have expressed interest in getting a home theater for their bar?”

The segment leader in each store also played a key role. For example, the segment leader in the home-theater room had to have a clear understanding of all the elements of a great experience for both customers and employees. “That ties right directly to the talent box,” Dunn explained, “where we absolutely have to have the right people in that room. It doesn’t work if we just take somebody that was working selling television and slap a shirt and tie on them and put them in the home-theater room. That doesn’t work. What we need is a passionate person who loves home theaters and thinks of them as the new hearth.” The passion had to be matched with discipline, however. “We can’t over-invest in labor. We can’t overspend in fixture. We have to have the right level of inventory, otherwise the model won’t work. We have to have the right scheduling approach for our home-theater installers. You’ve got to have all the disciplines, because if you don’t, it breaks down.” The responsibility for discipline and execution fell to both the segment leader in the store and the store’s general manager. Dunn continued: “At the end of the day, the execution variable was directly tied to the performance of those two. Because we know the value proposition put in is worth X. And where we get an exponential benefit is when we get X plus Y and then the X times Y. The multiplier is the understanding of the segment leader and the store manager.”

Indeed, in the case of home-theater equipment offered through Magnolia, it was up to the sales force and team managers to know as much or more than anyone else in the world about what those customers wanted and needed, especially since many customers were not able to articulate their needs. In theory, passion for the value proposition would facilitate the identification of the customer and the solution. Dunn compared it to the Wikipedia approach “where across the country people share learning points on each of these segments and a national picture starts to develop that is directionally correct. And then you bring your local day-to-day, hour-to-hour experience to it, say, oh, I understand this, this is where this connects and this is what this customers wants. And relationships form in that segmentation bucket.”

According to Dunn, customer-centricity put enormous pressure on the stores to move beyond implementation excellence along what he described as a six-part continuum:

The first step is leadership. The second is talent. The third is SOP. The fourth is business acumen, meaning that all store employees had to have an understanding of ROIC [return on invested capital]. Fifth is segmentation. The very act of focusing on one customer segment makes you better across the broader spectrum. The sixth, innovation, is basically that in the process of the conversation with the customers, you will identify things that you may not be able to provide right now but could provide in the existing platform.

The first three elements were foundational. The other categories were customer-centric elements. “We have to have foundational discipline to focus and drive a differentiated experience,” Dunn explained. “If we just have innovation and not the foundations that allow for economy of scale, we




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will be in trouble just as surely as if we just stayed focused on the first three elements, the SOP-focused elements. My job is to move that imaginary line after the SOP to come after segmentation.”

While some parts of the organization resisted change, Dunn noted, others just wanted to focus on “innovation, innovation, innovation. The truth of the matter is I have to have both,” Dunn added, “and it’s OK for different leaders to be in different places or have different strengths along that spectrum or that continuum, but the challenge is having both. The challenge is that we have 120,000 people all in different places with different interpretations and different biases and their own personal thoughts about what ‘good’ looks like.” For example, when the Xbox 360 launched and customers camped outside of Best Buy stores, they were given the possibility of buying the new Xbox as a bundle—a productive outcome of customer-centricity but one that only worked for some of the company’s customers.

From Managing Product to Managing People

Under customer-centricity, GMs were expected to lead by example by being engaged on the floor, talking to employees and customers and matching customers with the best associates to meet their needs. “This takes five times more time as they felt they needed before to drive their business,” HR Vice President Decker explained. “Our GMs have always been quite gifted at being able to understand their store and look at their scorecards. They were able to drill down to a specific SKU [stock-keeping unit] and know one of seven things they needed to do. But we have pulled them back to a much more strategic level. We’re moving to an owner/operator mind-set, which is quite different than working a store where you get your marching orders every morning.” Decker continued:

In the past, strategy used to be developed at the top, and the field organization worked like an army with the general. It was very task driven, we had a plan for everything, where you stand, how you open store in the morning, everything! With customer-centricity, we had to figure out how to get Blue Shirts to be that trusted friend and come up with a solution versus more products. To get that we have to develop a relationship between the employee and store team that models the deep relationship you want associates to have with customers.

Naturally, associates expected to be compensated more for the extra effort expected of them on the sales floor. “If your frontline employees are adding more value, and you have a true meritocracy, it works out,” Decker explained. “Plus, you are rewarding the people who very specifically are adding value to your bottom line.” In the past, job class determined compensation more than performance. (See Exhibit 10 for behavior and development guide used in performance evaluation.) However, a manager explained, “When you turn the strategy on its ear you have to also then begin to unwind the systems and processes that you have in place that reward the old behavior, when what you’re trying to do is reward the new.” Best Buy typically turned over two-thirds of its general managers a year, which was not uncommon in the industry. But retention was up in 2005. A young starting store manager in a midsize box probably earned about $50,000, to as much as $150,000.

Taking Stock

The Best Buy reporting system provided daily feedback on how centricity (and noncentricity) stores were faring and how well store teams executed against the strategy. Indeed, several times a day, stores tallied totals for revenue, productivity (the revenue versus the number of store visitors), and close rate (the number of visitors versus the number of products sold), department by department. GMs knew every day where their store ranked in terms of sales and ROIC in the district and in the region and how they stacked up against every other Best Buy store in North America.




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They reported results to their associates in daily “chalk talks” (see Exhibit 11). Every morning, department supervisors received a sales goal for the day. They in turn asked their sales staff to provide a daily goal. Daily meetings offered an opportunity to educate associates on the drivers of store profitability. The meetings were also useful for teaching employees good business practices. Occasionally, managers would videotape an interaction with a customer, then break it down for the sales clerk, often asking: “If we were delivering the level of customer service to these particular segments, whatever they were looking for, how much more would we have been able to gross?” For improvement opportunities, segment leaders also examined daily store scorecards for stores in which their segments were represented.

The Merchants

Prior to customer-centricity, the merchant organization, which was in charge of buying, pricing, assorting, and merchandizing, was organized by business units: MP3 players, CD players, TVs, PCs, cameras, and so on. Strategic thinking occurred at the senior vice president level, with the strategic business development group making decisions on the corporate level as to what selection of inventory to offer in the stores. According to Anderson, Best Buy had always been “a merchant-driven company.”

The new model forced merchants to collaborate with segment leaders, and Anderson observed that “those used to dictating were forced to work in a team, which was more complicated.” The merchant organization was therefore redesigned to take a more holistic view of the industries and the customer needs that relate to those industries. The new structure was based on seven domains, such as “sharing memories” or “listening to music” (see Table B). Domains cut across different merchandise categories and focused on customer solutions. Anderson observed that merchants had to look at “customer-centricity groups as primary lifestyle drivers in their choices of shared groups of customers.” After the introduction of a new product structure, goods were divided into 15 categories: 10 fell into discrete customer segments, and five cut across all segments. For example, a category identified as “voice and data” (cell phones, memory devices, etc.) had universal application.

Table B Merchant Organization Domains

Name Sample Merchandise Home-entertainment experience TVs, DVD players, speakers, remote controls, batteries Sharing memories Digital cameras, printers, camcorders Personal communication Phones, pagers, headphones, modems Listening to music CD players, CDs, MP3 players, headphones, portable

music devices Playing games Game stations, accessories, games Home life Kitchen accessories Business minded Modems, computers, calculators

Source: Company documents.

Seven domain heads reported to three senior VPs via directors or business team leaders. The role of the VP was not only to be the chief merchant but also to be the chief strategist and think about how different goods could be rolled up into a domain. Ron Boire, executive vice president and GM, oversaw four vice presidents, one responsible for operations and three for domains. While the third




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senior VP could make deals without getting permission from the other two senior VPs, he was accountable for his decisions and shared profit-and-loss (P&L) responsibility. They also had targets related to economic value added (EVA) (profit), customer metrics (inventory), and engagement metrics (customer). They were also in charge of setting prices, selecting the assortment, and developing promotional strategies.

Merchant VPs were expected to think of possible customer services in their area and to grow their business by offering accessories and services as well as to identify the customers most likely to buy these packages. According to Boire, for example, the sharing memories domain evolved from a digital imaging goods category and could appeal to a number of segments, such as Jill or Ray. With a particular segment, such as Jill, the role of the sharing memories team was to understand everything about this particular segment’s needs around memories and the solutions she might want. “The biggest problem with Jill today is that all these products are very complicated. Her value drivers are she has no time and she’ll do anything for her kids,” a manager explained. “Today we think about everything from the device used to capture the picture, transferring the picture, storing the picture, managing it, improving it, sharing it, reproducing it, as part of the value chain. So where we previously would have looked at this domain as a $5 [billion] or $6 billion domain, we now look at it as something like a $25 billion domain.”

Boire observed that there were significant changes in decision rights. In the past, if a merchant had an idea and wanted to test something, she just came in the store and tested it. Under customer-centricity, merchants were required to test their new ideas in lab stores in an orderly fashion through a pipeline process. “It used to be that the only source for input on what we’re going to sell was the merchant team,” Boire explained.

Now there are all these other sources of input. If the segment leader wants to sell guitars in a lab, we’ve got to go out and buy guitars. So the rules and responsibilities change a little bit, and quite a bit in the labs. As you get into scale, obviously, because we’re a large enterprise, you get into a lot more rationality. So the experts buy and the experts market and the experts talk to their customers and the experts operate the stores. But in the lab environment, if you’re really going to innovate, you really need somebody who’s just completely obsessed with the customer, focused on the customer experience, and give them the authority to operate that lab the way that they see fit. As long as, of course, they’re getting the results and the learning.

At best, segment leaders and domain leaders had a mutually beneficial relationship. “The segment leaders should be a great input into the domains and how we think about product and how we talk to our vendors about building out solutions,” Boire explained. Conversely, the Barry segment leaders might not know all the thousand different technologies that Barry could buy. So the merchant group could be an asset in suggesting what Barry might like. “As customer-centricity evolves, we get closer and closer to that kind of behavior,” Boire said. In the meantime, Anderson mused, “Merchants were used to being pretty much the king, so it’s tough for them to start having these other voices in there that they have to respond to, and that genuinely makes their life much more complex.”

When customer-centricity was introduced, the new strategy did not fully engage pricing and promotion. U.S. Best Buy pricing strategy was centralized but as a defensive response, at a store level; if in a market there was a competitor whose price was lower, the GM could reduce the price on an as-needed basis.




12

The Segments

Segment organization was the newest addition to the Best Buy structure, a direct result of the customer-centricity model. Armed with insight into consumer needs, segment leaders tried to articulate the marketing and related sales opportunities both to GMs and to merchant teams. This was not always an easy sell. Indeed, while GMs and merchants felt that they had already been managing a portfolio of customers successfully, segment leaders were asking them to focus on one or two groups, “expecting a leap of faith that the extant customer base would not be eroded.” Furthermore, they were “asking to shift focus from a wide segment to a particular customer need.” Indeed, segment leaders required that some SKUs, such as computer accessories, get more attention and some less. Segment leaders observed, “Merchants were used to driving the whole boat, and now they have somebody sharing that.” Segment leaders tended to focus on the opportunity from the perspective of the consumer.

Dunn illustrated a potential tension point—a segment leader might go to a buyer and describe the assortment needed to execute a certain value proposition in some 50 stores and then ask the buyer to buy this for the other 550 stores, at the best deal. The buyer might retort that this plan does not fit his profit plan: “I have these SKUs planned with this vendor. Oh, I understand what you want to do, but those aren’t the right SKUs. These are the right SKUs.” Or “Boy, that’s interesting, but you’re not thinking about the back-money allowance we’re getting, so now you’re impacting my profitability.”

In the store, segment leaders worked with the store manager and the team assigned to each segment to execute on the value proposition. For a conversion to be successful, the right talent, rewards, and information systems needed to be in place, and the segment leader in the store had to be able to continuously improve segment strategy at the store level. That required a particular kind of person, one who could enroll store and department managers into the vision of his or her segment.

Segment organization P&L was heavily dependent on the merchants and the stores. Indeed, the segment organization was held accountable to deliver incremental growth in store sales per segment and better identify segment needs.32 Since segment leaders had to manage P&L per store where their segments were present, they felt frustrated if their ideas were not being accepted by the store and the merchant organization. They felt “completely handcuffed in terms of growing their business or growing their P&L,” Dunn said.

A central question was who should own the vendor relationships, the merchants or the segments. Dunn felt that merchants should keep the capabilities and the skills they had in being the lead in the vendor relationships but that the segment leaders needed to have a way into the discussion: “We need to be careful not to lose our leverage of being a huge company.”

The Right Choices

The P&L Debate

A main point of contention was that the stores, merchants, and segments ran their own P&L. Each was evaluated along its respective EVA, return on capital, and top-line sales growth. 33 Executive officers were paid on EVA.

Boire believed P&L monitoring helped business teams “focus on actionable knowledge and the competencies of each team as Best Buy grew up in the strategy.” “We really, truly probably have done that incorrectly,” a segment leader countered. “There should be one P&L, since we all have a piece or a contribution of it.” It was unclear however, which one of the three sectors was the true




13

“owner of customer insight.” The debate raised the question of whether the segments and merchants should continue to stand alone and, if so, who should report to whom and how should each part of the organization work with all others. “When you put people into situations in which they’re codependent,” Anderson had learned, “leaders in particular have a difficult time with that codependency.” Dunn proposed a different tack:

I would love to make it simple and say they should be one organization. But I don’t think so. I think we should be organized around end-to-end ownership of horizontal initiatives. We will eventually integrate into business teams an integrated operating model that has a merchant, a segment lead, and a field leader. That organization would be responsible for delivering end-to-end service to the customer and P&L to the shareholders.

Synchronization and Pace

In 2005, Boire concluded, “We went into scale mode, and in the scale mode, just like anything else, you hit road bumps.” He believed that the third-quarter results reflected a lack of synchronization and optimization among the three business units. The potential benefits of customer-centricity were far from realized. Segment leaders were frustrated when stores did not meet their sales by segment. In turn, some GMs and the sales force felt that neither merchant group nor segment organization was listening to their valuable insights. Anderson admitted:

We spread ourselves thinner and thinner and thinner, we really didn’t deliver the value propositions to the customer as we expanded out. Last year, we did 67 stores at once, which we thought was going to test substantially and might break the value proposition. By this year, we have about 250 centricity stores. That last batch did not deliver as well as the other batches have. I think we knew we were pushing and we pushed it too far.

In the most recently converted stores, higher gross profit margins could not compensate for conversion costs and selling, general, and administrative expenses. Many converted stores had not been upgraded in a long time. Rising staffing expenses were another culprit. Higher labor costs were associated with adding business-oriented sales associates, personal shopping assistants, and other such positions. Expenses increased 21.7% in the third quarter of 2005 as compared with 19.5% in the prior year.

Best Buy planned to simplify internal processes and increase retention to further improve the customer experience and company productivity.34 “We are going to have to pare back some of the things that we change,” speculated Anderson. “If the choices of what things you pare back are poorly made, you can either damage or kill the innovation culture we’re trying to build.” Still, he felt confident that his team would come through:

One biggest source of contention was the new strategy’s inability to meet the ego needs of some of our leaders. I was trying to be a change leader. I foisted consultants or strategy on folks without the real ability for them to choose. Today I am trusting the leadership team that we have with the choices of what they edit in and out, and therefore trusting that they will cherish the core ingredients to give us the real growth options for the future.

As the company regrouped, more and more stores agitated for prompt conversion. With more attention and resources going to centricity stores, a manager warned, “How do you keep your folks in your base stores highly motivated? They’re the engine, but while others are doing interesting little innovations, the folks in the base business get to keep the engine running. How do you get a line drawn on what you’re trying to accomplish as a company and have everybody feel like they’re part of the story, whether they’re in a centricity store or not?”




14

Fragmentation

There was also some debate around the fragmentation brought about by excessive segmentation. Beyond the first five segments, Best Buy later identified three more segments (two empty nesters, Helen and Charlie, and a single professional female, Carrie); however, subsequent subdivision of the client base seemed inadvisable. In fact, the notion of “cluster stores” had emerged. For example, several segments might be 10% to 12%, 15% of the store population; aggregated they would represent 35% or 45% of the store. As an example, personal shopping assistant service, originally developed for the Jill segment, was appropriate for a store with the Magnolia home-theater room. Boire looked for such “high-value intersections”:

Like any new strategy that shifts power and decision rights, you end up with a “focus on everything” strategy where everyone tries to do everything. Now, with data that’s come out of centricity, we’ve made decisions about where to focus our assets. For example, we focus our home-entertainment experience against Barry and Ray. So most of our effort should be around optimizing our home-entertainment returns for Barry and Ray while not significantly impacting the other customer segments.

Furthermore, the possibility of establishing BB4B as a stand-alone unit was under consideration because the small-business sector was so important to Best Buy and cut across various segments.

Meanwhile, as Anderson was reimagining the retail concept, replacing Best Buy’s high-volume, uniform system with one that emphasized agility, responsiveness, and accuracy and pinpointing smaller, sales floor-ready deliveries to meet the changing desires of specific customer segments, he was concerned that some segments were expecting Best Buy to do something exceedingly different from the company’s initial plan. For example, “Jill wanted Best Buy to be something the store is not because the stores were designed for men,” Anderson said.

Unlocking Human Potential

Despite all the challenges, a New England district manager was sanguine about Best Buy’s prospects: “When we’ve got to get mean and lean, we’re the best at it.” Anderson and his team were counting on such spirit for, by 2008, all of the U.S. stores were expected to include elements of the customer-centric model (see Exhibit 12). Anderson anticipated “latent human capital” to raise store revenue by 10%; thus, he wanted to use innovation that came from individuals. He explained:

Almost all organizations, particularly large organizations, waste human capital. There is a latent human capital that could be beneficial to customers and ultimately shareholders, and it is a part of leadership to unlock human capital. For example, if there are long return lines, it costs the store 25% of value of product. If we can do things that reduce the percent of times customers are confused, the economic value would be created. Unlocking human capital would generate structural savings.35

Meanwhile, Wal-Mart marched on. In 2004, Wal-Mart had 14% of the consumer electronics market, compared with Best Buy’s 18%, and Wal-Mart’s rise was expected to continue. What had become clear was that selling harder, smarter, and classier had been very expensive for Best Buy. The risk for the firm, analysts warned, was eroding its price advantage or margins or both. With its salaried workforce, they asked, could Best Buy offer the type of hyperinformed sales help usually reserved for much higher-market retailers such as Nordstrom while continuing to be a “best buy”?




15

Exhibit 1 Best Buy Financial Highlights ($ in millions, except per share amounts), 2002–2004

Fiscal Yeara 2004 2003 2002 Consolidated Statements of Earnings Data

Revenue $24,548 $20,943 $17,711 Operating income 1,304 1,010 908 Earnings from continuing operation 800 622 570 Loss from discontinued operations, net of tax (29) (441) -- Gain (loss) on disposal of discontinued operations, net of tax (66) -- -- Cumulative effect of change in accounting principles, net of tax -- (82) -- Net earnings 705 99 570

Per Share Data

Continuing operations $2.41 $1.90 $1.77 Discontinued operations (0.09) (1.34) -- Gain (loss) on disposal of discontinued operations (0.20) -- -- Cumulative effect of accounting changes -- (0.25) -- Net earnings 2.13 0.31 1.77 Cash dividends declared and paid 0.40 -- -- Common stock price:

High 62.70 53.75 51.47 Low 25.55 16.99 22.42

Operating Statistics

Comparable store sales change 7.1% 2.4% 1.9% Gross profit rate 23.9% 23.6% 20.0% Selling, general and administrative expense rate 18.6% 18.8% 14.9% Operating income rate 5.3% 4.8% 5.1%

Year-End Data

Current ratio 1.3 1.3 1.2 Total assets $8,652 $7,694 $7,367 Long-term debt, including current portion 850 834 820 Total shareholders’ equity 3,422 2,730 2,521 Number of stores:

U.S. Best Buy stores 608 548 481 Magnolia Audio Video stores 22 19 13 International stores 127 112 95

Total retail square footage (000s) U.S. Best Buy stores 26,421 24,243 21,599 Magnolia Audio Video stores 218 189 133 International stores 2,800 2,375 1,923

aFiscal 2001 included 53 weeks. All other periods presented included 52 weeks.




16

Exhibit 1 (continued) Consolidated Results ($ in millions, except per share amounts)

Consolidated Performance Survey 2004 2003 Revenue $24,548 $20,943

Comparable store sales % gain 7.1% 2.4%

Gross profit as % of revenue 23.9% 23.6%

SG&A as % of revenue 18.6% 18.8%

Operating income $1,304 $1,010

Operating income as % of revenue 5.3% 4.8%

Earnings from continuing operations $800 $622

Gain (loss) from discontinued operations, net of tax (95) (441)

Cumulative effect of changes in accounting principles, net of tax -- (82)

Net earnings $705 $99

Diluted earnings per share—continuing operations $2.41 $1.90

Diluted earnings per share $2.13 $0.31

Source: Annual Report 2005, www.bestbuy.com.

Exhibit 2 Best Buy Stock Price vs. Competition

Best Buy & Competitors Stock Prices1992-2005

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Source: Datastream International.




17

Exhibit 3 Best Buy Retail Square Footage from Continuing Operations, FY1993–FY2005a

Actual, Not Weighted (in 000s) U.S. Best Buy Magnolia

Audio Video International Total As of end of Fiscal Year 1993 3,250 3,250

1994 5,072 5,072

1995 8,041 8,041 1996 10,771 10,771

1997 12,026 12,026

1998 12,694 12,694 1999 14,017 14,017

2000 16,205 16,205

2001 19,010 133 0 19,143 2002 21,599 133 1,923 23,655

2003 24,243 189 2,375 26,807

2004 26,421 218 2,800 29,439 2005 28,260 194 3,139 31,593

Source: Company documents. aExcludes Musicland store square footage.



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19

Exhibit 5 Segment Representation in Customer-Centricity Rollout

Best Buy for Business

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Affluent Customer

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Suburban Mom17%

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Source: Henri Bourgeois and Balaji Chakravarthy, “Best Buy: Staying at the Top,” IMD—International Institute for Management Development, Case No. IMD–3–1430 (Lausanne, Switzerland: 2004).

Exhibit 6 Major Customer Segments

Type Description Merchandise Barry Affluent professionals who want the

best technology and entertainment experience

Home theater

Buzz Active younger males who want the latest technology and entertainment

DVD players, latest CDs and DVDs

Ray Family men (policemen, firemen, teachers) who want technology to improve their lives—practical adopters of technology and entertainment

Entertainment and recording devices

Jill Busy suburban moms who want to enrich their children’s lives with technology and entertainment

Educational software, desktops, devices to store and share images (digital cameras)

BB4B/Best Buy for Business Small-business customers who can use Best Buy’s products and services to enhance the profitability of their businesses

Modems, routers, computer equipment

Source: Casewriter.




20

Exhibit 7a Barry Psyche Walk

Barry’s Psyche

• He’s male • Age 31+ • Top 10% of household income & wealth • Typically married What are his needs?

Time Maximizer: SERVICE

• Barry strives to balance career and family, needing to carve out time for family and friends. • He has more money than time, but despises wasting either. • He wants a store that provides a convenient, hassle-free shopping experience. • He needs end-to-end service in one place. Respect and Trust: EXPERIENCE

• Barry is accustomed to respect and trust, and therefore he expects it. • His focus is on career and family. He expects his family to get the same treatment, if not better, than he does. • His wife (Ginger) is key influencer—if she is happy, Barry is happy. • He considers networking and relationship building important. A trusted friend, colleague, mechanic,

stockbroker, sales associate and so on, are his resources because they are shortcuts to getting things done. The Best Stuff: ASSORTMENT

• Barry is an achiever and proud of his accomplishments. • He seeks to be important in the eyes of others. • He wants others to recognize him as the best. • He believes he deserves the best. • He wants premium brands and services. Quality and value are important to him, and as such he prefers

“premium-grade” products and services because increased quality saves him time and hassles. • He is informed about advances in technology. He is not afraid to try the latest and greatest. He tends to be an

early adopter. If the benefits are clear to him, he will buy.

Source: Company documents.




21

Exhibit 7b Jill Psyche Walk

Jill’s Psyche

Who is Jill? • Affluent suburban moms • Has kids under age 18 • Household income top 30% of country • Family is the most important thing in her life • CEO of the household • Incredibly busy with all of the tasks on her “to-do” list • Likes to share ideas with other moms

What are her needs? • Make my experience as practical as possible. • Help me find ways to enrich my children. • Help me find ways to unleash my creativity. • Respect me and my needs. Jill Subsegments Toddler Jills (5 or under): • All about their children—helping kids discover the world • Satisfaction of being a mother is defined through milestones their young child(ren) achieves • More price conscious since they aren’t contributing; relish the game of price shopping Elementary Jills (6–8): • “But Why Mom?”—assisting in child’s growth • School is now taking on educating the children; however, she is looking for things that make time with kids fun • Seasonality/school year plays a role in balancing learning and fun • Kids are too old for Just for Kids, yet not heavy into video games, CDs, DVDs Tween Jills (9–12): • “Taxi-Mama”—enabling child to achieve in all aspects • Kids getting excited about technology, Best Buy • Growing pressure from school, homework, and activities on kids—make or break point Teenager Jills (13–17): • “Movin’ On”—coping with kids’ independence • Kids are key users and introducers of entertainment and technology in the household • Jill relishes the “last time” activities (graduation, prom, driving) • Worries about her kids driving, having sex, doing drugs, choosing colleges, and health concerns for herself

and parents

Source: Company document.




22

Exhibit 8 Magnolia Room, Best Buy in Shoppers World, Natick, Massachusetts

Source: Casewriter.




23

Exhibit 9 Best Buy for Business Segment and Geek Squad Customer Support Center, Best Buy in Shoppers World, Natick, Massachusetts

Source: Casewriter.



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rovi

des

cons

iste

nt m

essa

ges

in d

epar

tmen

t m

eetin

gs o

r ot

her

setti

ngs

abou

t the

val

ue o

f ce

lebr

atin

g an

d en

joyi

ng th

e di

ffere

nces

in a

ll em

ploy

ees

and

cust

omer

s

Lear

n fr

om

chal

leng

e an

d ch

ange

− A

void

s se

ekin

g fe

edba

ck

− D

enie

s fe

edba

ck w

hen

offe

red

or ta

kes

it pe

rson

ally

−

Der

ails

pos

itive

effo

rts

of c

hang

e or

res

ists

cha

nge

− A

void

s ch

alle

ngin

g as

sum

ptio

ns

− C

halle

nges

ass

umpt

ions

in a

con

fron

tatio

nal m

anne

r −

Avo

ids

unco

mfo

rtab

le s

ituat

ions

−

Doe

s no

t har

e in

form

atio

n—le

vera

ges

info

rmat

ion

as

pow

er

− D

oes

not s

hare

opi

nion

from

his

/her

are

a of

exp

ertis

e −

Avo

ids

addr

essi

ng a

nd d

rivin

g so

lutio

ns

− D

oes

not e

ffect

ivel

y m

edia

te te

nsio

n or

con

flict

am

ong

diffe

rent

em

ploy

ees

− G

ives

con

stru

ctiv

e fe

edba

ck

− T

akes

feed

back

wel

l and

app

lies

goin

g fo

rwar

d −

Ask

s ot

hers

for

feed

back

−

Res

pect

fully

cha

lleng

es a

ssum

ptio

ns

− A

dapt

s w

ell t

o ch

ange

−

Acc

epts

cha

nge

as a

gro

wth

opp

ortu

nity

−

Res

pond

s qu

ickl

y to

bus

ines

s ne

eds

− S

eeks

and

sha

res

best

pra

ctic

es

− R

aise

s di

fficu

lt is

sues

; dis

agre

es r

espe

ctfu

lly

− C

ontin

ually

look

s fo

r op

port

uniti

es to

impr

ove

− A

ctiv

ely

enga

ges

and

wel

com

es a

var

iety

of d

iver

se

pers

pect

ive

in r

esol

ving

pro

blem

s

− U

nder

stan

ds a

nd a

pplie

s ch

ange

man

agem

ent

tech

niqu

es

− R

espe

ctfu

lly c

halle

nges

ass

umpt

ions

and

eng

ages

ot

hers

in d

ialo

gue

arou

nd is

sues

−

Em

brac

es c

hang

e as

a g

row

th o

ppor

tuni

ty

− A

dapt

s w

ell t

o ch

ange

and

hel

ps o

ther

s ad

apt a

s w

ell

− H

elps

oth

ers

unde

rsta

nd b

usin

ess

case

for

chan

ge

− C

ontin

ually

look

s fo

r an

d ac

ts o

n op

port

uniti

es to

im

prov

e −

Look

s to

eve

ry o

ppor

tuni

ty/in

tera

ctio

n as

a le

arni

ng

oppo

rtun

ity

− A

rtic

ulat

es h

ow th

ey h

ave

writ

ten

them

selv

es in

to th

e “c

hang

e” s

tory

−

Und

erst

ands

and

sha

res

less

ons

of p

ast,

real

ity o

f pr

esen

t, an

d co

nseq

uenc

es fo

r th

e fu

ture

−

Effe

ctiv

ely

inte

ract

s w

ith a

wid

e ra

nge

of d

iver

se

indi

vidu

als

or g

roup

s an

d w

elco

mes

opp

ortu

nitie

s to

be

imm

erse

d in

env

ironm

ents

whi

ch th

ey a

re

unac

cust

omed

to



506-

055

-25-

Exhi

bit 1

0 (c

onti

nued

)

Val

ue

Not

Liv

ing

Livi

ng

Tea

chin

g

S

how

res

pect

, hu

mili

ty, a

nd

inte

grity

− D

ism

isse

s so

me

poin

ts o

f vie

w

− A

ssum

es n

egat

ive

inte

nt

− T

reat

s pe

ople

diff

eren

tly b

ecau

se o

f the

ir st

atus

−

Has

fun

at th

e ex

pens

e of

oth

ers

− A

ssum

es “

my

way

is th

e on

ly w

ay”

− A

ligns

onl

y w

ith th

ose

who

“ar

e lik

e m

e”

− A

ctio

ns c

onfli

ct w

ith s

tate

men

ts

− B

linds

ides

oth

ers

− A

void

s pa

rtne

ring

with

oth

ers

− T

akes

cre

dit f

or o

ther

s’ w

ork

− T

akes

sho

rtcu

ts a

t the

exp

ense

of o

ther

s in

driv

ing

for

resu

lts

− D

oes

not d

emon

stra

te ta

ngib

le e

xam

ples

of h

ow

he/s

he c

reat

es a

n en

viro

nmen

t whi

ch w

elco

mes

a

varie

ty o

f per

spec

tives

− A

ppre

ciat

es th

e va

st k

now

ledg

e an

d ca

pabi

lity

of

othe

rs

− R

espe

cts

and

valu

es th

e co

ntrib

utio

ns o

f oth

ers

− S

olic

its id

eas

from

oth

ers

− Li

sten

s an

d ac

know

ledg

es o

ther

s’ id

eas

− T

reat

s pe

ople

fairl

y −

Inte

ract

s w

ith o

ther

s in

an

hone

st a

nd s

trai

ght-

forw

ard

man

ner

− W

alks

the

talk

−

Pre

fers

to “

ask”

ver

sus

“tel

l”; s

eeks

to u

nder

stan

d −

Ass

umes

pos

itive

inte

nt

− A

sks

for

help

whe

n ne

cess

ary

− U

nder

stan

ds h

ow e

mpl

oyee

s di

ffer

in th

e w

ay th

ey

expe

rienc

e th

e w

ork

envi

ronm

ent a

nd c

onsi

sten

tly

seek

s in

put

− Li

sten

s to

and

und

erst

ands

oth

ers’

idea

s −

Act

s on

opp

ortu

nitie

s to

edu

cate

oth

ers

on y

our

wor

k −

Art

icul

ates

wor

k th

roug

h th

e ey

es o

f oth

ers/

cu

stom

ers

− E

ncou

rage

s ot

hers

to s

hare

poi

nt o

f vie

w

− C

reat

es a

n en

viro

nmen

t whe

re o

ther

s w

alk

away

fr

om a

cha

lleng

ing

situ

atio

n fe

elin

g po

sitiv

e, h

eard

, an

d em

pow

ered

−

Ens

ures

div

erse

per

spec

tives

are

incl

uded

on

actio

n pl

anni

ng te

ams

(like

vie

wpo

int)

and

coa

ches

em

ploy

ees

on w

ays

to in

vite

a v

arie

ty o

f per

spec

tives

in

pro

blem

sol

ving

impr

ovem

ent o

ppor

tuni

ties

Unl

eash

the

pow

er

of th

e pe

ople

−

Doe

s no

t allo

w o

r tru

st p

eopl

e to

do

thei

r jo

bs

− D

icta

tes

how

peo

ple

shou

ld d

o th

eir

jobs

−

Mic

rom

anag

ing

empl

oyee

s/pe

ers

− D

oes

not r

ecog

nize

the

valu

e of

oth

ers

− D

oes

not p

artn

er w

ell w

ith o

ther

s −

Wor

ks in

a s

ilo

− D

oes

not s

eek

inpu

t fro

m o

ther

s −

Doe

s no

t hav

e cl

ear

exam

ples

whi

ch d

emon

stra

te a

n un

ders

tand

ing

of e

ach

empl

oyee

’s s

tren

gths

− E

ncou

rage

s di

vers

ity o

f ide

as a

nd s

tren

gths

−

Art

icul

ates

how

em

ploy

ees

cont

ribut

e to

the

goal

s of

th

e te

am/c

ompa

ny

− S

how

s co

mm

itmen

t to

indi

vidu

al a

nd te

am

enga

gem

ent

− T

rust

s ot

hers

to d

o th

eir

jobs

in th

eir

own

way

s −

Rec

ogni

zes

the

valu

es o

f oth

ers

− H

elps

oth

ers

unde

rsta

nd w

here

to a

dd v

alue

−

Giv

es o

ther

s ho

nest

, tho

ught

ful a

nd c

onst

ruct

ive

feed

back

−

Sho

ws

how

div

erse

em

ploy

ees

part

icip

ate

on

impo

rtan

t pro

ject

s an

d as

sign

men

ts

− D

rives

team

eng

agem

ent

− M

ento

rs to

pee

rs

− P

ositi

ons

othe

rs to

do

thei

r be

st w

ork

− Le

vera

ges

and/

or e

ngag

es o

ther

s to

acc

ompl

ish

proj

ects

−

Util

izes

the

virtu

ous

teac

hing

cyc

le to

sha

re p

ower

in

deci

sion

-mak

ing

−

Has

dem

onst

rate

d a

TP

OV

on

dive

rsity

to h

is/h

er

team

and

how

it c

ontr

ibut

es to

hel

ping

eac

h em

ploy

ee u

se th

eir

tale

nts

and

stre

ngth

s in

sup

port

of

the

com

pany

mis

sion

Sour

ce:

Com

pany

doc

umen

ts.




26

Exhibit 11 Chalk Talk Data

Source: Casewriter.




27

Exhibit 12 Store Opening Plans FY2005 and FY2006

U.S. Best Buy FY2005

Opening Plans U.S. Best Buy FY2006

Opening Plans Q1 10–12 11

Q2 8–10 16–18

Q3 25–27 25

Q4 13–15 6–7

Source: Company annual reports, www.bestbuy.com.




28

Endnotes

1 CEO Anderson’s Letter to Shareholders, Best Buy Annual Report 2005, p. 1, www.bestbuy.com, accessed February 10, 2006.

2 Best Buy’s fiscal year ended in February.

3 “BBY-3Q2006 Best Buy Co., Inc. Earnings Conference Call,” Preliminary Transcript, Thomson StreetEvents, www.investext.com, accessed February 5, 2006.

4 Michael Copeland, “Best Buy’s Selling Machine He’s 26. He Wears Hoop Earrings. He’s a Demon Salesman. And The Electronics Chain He Works For Is Cranking, Thanks To An Army Of Folks Just Like Him. But Is That Enough To Save It From Death-By-Wal-Mart?” Business 2.0, July 1, 2004, available on Factiva, accessed February 19, 2006.

5 Best Buy 2005 10-K report, www.bestbuy.com, accessed February 4, 2006.

6 www.bestbuy.com, accessed January 2006.

7 Copeland, “Best Buy’s Selling Machine.”

8 Best Buy 2005 Annual Report, www.bestbuy.com, accessed February 9, 2006.

9 Dorothy Leonard and Brian DeLacey, “Best Buy Co. Inc. (A): An Innovator’s Journey,” HBS Case No. 604-043 (Boston: Harvard Business School Publishing, 2005).

10 Company Fact Sheet, http://www.bbycommunications.com/newscenter/FY05_Fact_Sheet_Q4.pdf.


12 Anderson had been vice chairman since 2001 and president and COO since 1991.

13 Circuit City Stores, Inc., www.hoovers.com, accessed February 14, 2006.

14 Ken Cottrill, “Best Buy’s Customer-Facing Supply Chain,” Harvard Business Review, December 2005.

15 Best Buy 2005 10-K report, p. 6, www.bestbuy.com, accessed February 4, 2006.

16 Best Buy 2005 10-K report, p. 8, www.bestbuy.com, accessed February 4, 2006.

17 Henri Bourgeois and Balaji Chakravarthy, “Best Buy: Staying at the Top,” IMD–3–1430, 2004.

18 For more detail, see Anita Elberse, John Gourville, and Das Narayandas, “Angels and Devils: Best Buy’s New Customer Approach (A),” HBS Case No. 506-007 (Boston: Harvard Business School Publishing, 2005).

19 Joe Quennana, “The Shoppers from Hell,” Chief Executive, April 1, 2005, www.factiva.com, accessed February 19, 2006.

20 Best Buy Annual Report 2005, p. 24, www.bestbuy.com, accessed February 9, 2006.


22 Ibid.

23 Ibid.

24 From Customer-Centricity: A conversation with Brad Anderson, CEO, Best Buy, IMD–3–1430–V4.

25 Q3 2006 Best Buy Co., Inc. Earnings Conference Call, Thomson StreetEvents, www.investext.www, accessed February 5, 2006.

26 Don Peppers and Martha Rogers, “Best Buy Counts Customers,” CIO, July 1, 2005, available on www.factiva.com, accessed February 19, 2006.




29

27 Best Buy Annual Report 2005, www.bestbuy.com, accessed February 9, 2006.

28 Best Buy Annual Report 2005, p. 26, www.bestbuy.com, accessed February 9, 2006.

29 Cottrill, “Best Buy’s Customer-Facing Supply Chain.”

30 Peppers and Rogers, “Best Buy Counts Customers.”

31 “Corporate Overview: Profile,” www.bestbuy.com, accessed February 2, 2006.

32 Helen segment leader, interview.

33 Calculated as the difference between net operating profit after tax (NOPAT) and a capital charge (invested capital times weighted average cost of capital, or WACC).

34 Best Buy Annual Report 2005, www.bestbuy.com, accessed February 10, 2006.

35 Best Buy Q&A Session with Brad Anderson: the Customer-Centricity Strategy, IMD–3–1430–V1.



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