Reza Primasatya

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Circuit City Stores, Inc.

Prepared By:
Students of Strategic Management
Solomon Faizi
Hanh Ly
Son Nguyen
Jackie Vo

Prepared For:
Robert Wood
Professor of Strategic Management
San Jose State University
Bus 189 Sec 02
9 December 2002

Executive Summary

Circuit City History
The year is 1966 and Wards, a television and appliance company established in 1949, is hot. As the one and only giant of television, the company enjoys a growth rate of 2200% since 1958 and its sales continue to skyrocket. The company continues to expand itself by offering innovative products like audio equipment and diversifies by entering markets including automotive supplies, gasoline, clothing, and even children’s toys. In 1968 the company goes public while continuing to expand and focus on innovation and differentiation, grasping each opportunity gain a hold of untapped markets. In 1977 the company renames itself Circuit City and continues to prosper as the market leader in consumer electronics. Its almost 50-year reign over other companies unfortunately lasts only until the late 1990’s due to a highly saturated market with slow growth. The consumer electronics retailing industry, in the late 1990’s, becomes essentially a “zero-sum game: each percentage sales gain for one store is a loss for another” (Sack, page 7).

Best Buy’s Winning Strategies

With changing times, emerging competitors, and shifts in customer needs, Circuit City slips into second place as Best Buy moves into first, becoming today’s market leader in consumer electronics. With an aggressive demeanor to gain market share, Best Buy in 1995 began mimicking Circuit City’s expansion through the of opening new superstore chains. Being younger and with fast expansion, Best Buy now benefits from having more modern-looking stores located in more key areas that allow for both exposure and convenience. What has mainly contributed to Best Buy’s success, however, is having a strong strategic focus on efficiency. Operating with a non-commissioned sales force and placing a strong emphasis on having a low-cost structure was definitely the golden way for Best Buy. Financial comparison between Best Buy and Circuit City is illustrated in Table 1 & 2.

Table 1: Circuit City Financial Data

*source: Circuit City 2002 Annual Report

|Circuit City |
|Executive Vice President |
|Division manager |
|Regional Manager |
|District Manager |
|Store manager |
|Department supervisor |

1. Based on these two measures and any other information you may have, would you say your company operates with a relatively tall or flat structure? What effects does this have on people’s behavior?

Research suggests that the average number of hierarchical levels for a company employing 3,000 persons is seven. An organization having nine levels would be called tall, and one having four would be called flat (Hill and Jones, pp 387). If we divide the 30,000 total number of Circuit City store employees by four divisions, we’d get 7,500 employees for each division. This analysis concludes that Circuit City management hierarchy of seven layers is neither a tall structure, nor a flat structure. It is somewhere in between.

Its current management hierarchy of seven layers though not considered tall structure still seems to be somewhat too many hierarchical levels. We believe a reduction of one level at “district level” would be beneficial to Circuit City. Currently the communication between the division manager and regional managers takes longer due to existence of district management position. Furthermore, information passed through the chain of command may also get distorted either accidentally or purposely...
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