RAJIV LAL CARIN-ISABEL KNOOP IRINA TARSIS
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. —ﰀBrad Anderson, Vice Chairman and CEO1 —ﰀMatt 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 ________________________________________________________________________________________________________________ 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. Sometimes it’s painful to be on the cutting edge.
REV: OCTOBER 16, 2006
Harvard Business SchoolBest Buy Co., Inc.:Case© The McGraw−Hill Strategy Cases — MarketingCustomer−CentricityCompanies, 2007
506-055Best Buy Co., Inc.: Customer-Centricity
new skills, Anderson noted that the customer-centric strategy was “different enough that it could not withstand failure to...