Circuit City Revisited: Worst Practices Don't Work

Last April I wrote a post to this blog about Circuit City (Permanent Innovation Blog: Worst Practices in Innovation Award Winner!), which laid off 3400 of its higher-paid sales staff (who were earning around $15 per hour) in order to save money by replacing them with people earning around $9 per hour. I figured that they might save around $35 million by doing so, but I predicted that it would backfire.

Well, the results are in. It did backfire.

According to an Associated Press report by Rachel Beck published January 13, 2008, Circuit City stock is now 80% down from last April before they announced the layoff, and calls for the CEO to resign or be fired are increasing. Same-store sales were off 11% during the holiday season, at a time when the consumer electronics market is booming.

The company wasn't doing very well before the layoffs, but they definitely made things worse.

Part of the problem is that Circuit's City's store concept is tired. But a staff of knowledgeable and helpful people could probably overcome that, because so many electronics customers bring repeat business to the places they shop. If customers are leaving Circuit City for their competitors, it can only mean that they're not having the shopping experience that they want, and the role of sales staff in that experience is critical. (By the way, how many ex-Circuit City employees moved over to Best Buy? That would be be really interesting to know!)

Retailing was and remains a human activity. Could Circuit City management really have forgotten that? We'll if they did, they've re-learned it by now. But is it too late?

So what should management do now, now that they have an eroding customer base and a staff of relative novices? For one thing, they need to train their people and nurture a culture of service. This could mean that they should over-staff their stores to insure that even more sales people are there to help customers than the sales level would call for. Of course that would hurt profits in the short term, but it could pay off in the longer term.

The problem is that in a deepening crisis, managements tend to think very short term; you can just imagine the executives pouring over the daily sales reports each morning to see how things are going from day to day, and meanwhile missing the opportunity to redesign the business for long term survival.

Because clearly Best Buy has a better business model for the moment. Can Circuit City recreate itself? Or is it destined for permanent also-ran status?

The bold thinking and innovation needed to reinvent a tired business model is pretty rare; strangely, far more companies actually go out of business because they can't figure out how to reinvent themselves in the face of a competitive crisis. Instead, they keep doing the same thing in a shrinking market until they disappear all together.

This is the likely outcome, you might say, of adopting worst practices ....

innovate or die

A contest sponsored by google and Specialized(a bike manufacturer) about innovative uses of bicycle power - click below to see a video of the AQUADUC T - the grand prize winner.



And click here to see all of the other contest entries Specialized: Innovate or Die

Can you avoid the social network train wreck?

John Maloney tipped me to Jay Deragon's Are We Headed for a Train Wreck?
which starts like this :

"Today’s social networks are “train cars” of conversations..... The “train cars” are fueled by today’s conversations and they are building speed, momentum and the attention of business. The velocity of these train cars, running on multiple tracks, is moving faster than anything in history and most businesses are not even aware that “the train is coming ...will there be a wreck at the intersection of people and business?"

Jay then quotes Doc Searls morose lament:

“Think of markets as three overlapping circles: Transaction, Conversation and Relationship. Our financial system is Transaction run amok. Metasticized. Optimized at all costs. Impoverished in the Conversation department, and dismissive of Relationship entirely. We’ve been systematically eliminating Relationship for decades, excluding, devaluing and controlling human interaction wherever possible, to maximize efficiency and mechanization"

To the rescue comes optimistic reader Daniel Robles with a view that conversational and collaborative nirvana may be just around the corner. He uses the data-information-innovation pathway popularized in Russell Ackoff's Paths to Wisdom diagram we used in our 1997 monograph The Knowledge Channel shown below:(1)

"The problem is that nobody has made a tangible connection between information, knowledge, and innovation - the current myriad of definitions made by important people are flat out wrong if not dangerous. Information is facts and data, knowledge is the rate of change of information with respect to time, innovation is the rate of change of knowledge with respect to time - The “in-crowd” still argues that you cannot measure knowledge and innovation directly. They fail to see that you can, however, measure the rate of change of information as a proxy for knowledge (first derivative) and the second derivative of information as a proxy for innovation. Whoever still thinks that knowledge is ‘intangible’ is living in a world that no longer exists....

...we can expect to see a true innovation economy - Web 3.0 will be predictive. A percentile search engine will calculate and combine strategic combinations of knowledge assets (from an computer enabled inventory) in infinitely unique and creative ways. Each combination will represent a business plan at a known probability of success. People will own knowledge assets and have perfect information regarding the inventory."

Devising such a model to represent these "strategic combinations of knowledge assets" such that "Each combination will represent a business plan at a known probability of success" has been the holy grail of the knowledge management clan for several decades.

Owning and having perfect information about your knowledge inventory is indeed a very exciting prospect. Can we avoid the train wreck?

To borrow Jay Deragon's blog tag line: "What say you?"

Link resources:

(1.) InnovationLabs Publications: The Knowledge Channel - Corporate Strategies for the Internet

(2) InnovationLabs Publications: Knowledge Channel Networks - Integrating Industry Value Chains on the Internet

(3)For my "antrail" to these resources see ddavison's Grazr Blog

Death, Taxes, and Tupperware

If you have enough Tupperware, jewelry, or cosmetics, and you’re still looking for something to celebrate and sell at a home party, perhaps it’s time to have a will signing party.

Willparties.com was created by Massachusetts lawyer James Haroutunian recently when he realized that while young couples had “no time” to come to his office to get a will prepared, they did want to plan for their children, and they managed to find time for evening gatherings with their friends and neighbors.

See, even lawyers can be creative business model innovators (and not just at Enron)!

Weightless in Vegas

Did you over-consume on your last trip to Las Vegas? Want to shed a few extra pounds?

Why not go all the way to complete weightlessness? According to the Skymall catalog I found in front of my seat, the Zero G experience is now available to me and to you at the modest price (?) of $3675.

The flights run from Kennedy Space Center, NASA’s Florida launch facility, and perhaps even more appropriately, they’re also available in La Vegas, where the gravity may already be less pronounced.

While the experience may be cool, it's the social and economic phenomenon that's really interesting. This could be seen as another small step in the progression of humanity beyond our Earthbound existence; and in a more mundane sense, it clearly shows the progressive redefinition of luxury and the expanding scope of human leisure and the commercial possibilities for new types of experiences.

India High Tech: A Homebrew Supercomputer

At the other extreme of technological innovation in India, the Tata Group has recently brought online the first privately funded and built supercomputer in the world, which has been benchmarked as the 4th fastest such machine in existence.

As reported in India's Businessworld magazine, the team confronted a vast range of organizational challenges, as the funding had to be obtained from Tata Group's senior-most managers, and then one of its key members quit the project over what was politely termed a “difference of opinion," but which was probably just one of many rip-roaring arguments between the strong-minded innovators who worked on the project.

There were also, of course, a host of technical issues. One key challenge was fitting the enormous machine into the 4000 square foot space that was allocated for it. It is frequently the nature of creativity that constraints become the basis of innovation, and the space shortage led to a critical design insight, as the size of the room led to a dense system layout that enhanced performance. According to a team member, “But for that constraint, we may not have thought of the innovative architecture.”

Despite the "compact" architecture, the machine still required 35 kilometers of wiring. It also consumes 2.5 megawatts of power, enough to light a small town. And rather than being challenged by rats, it's the bugs that they're busy eradicating in this machine....

The supercomputer is available on a timeshare basis, and competes in significant market that is estimated at a healthy $31 billion worldwide that counts among key customers aircraft designers who use supercomputers to calculate aerodynamic performance, and pharmaceutical companies that attempt to predict complex chemical reactions in drug performance.

India Low Tech: Trapping Rats

Innovation is a global phenomenon, with application in every community. It brings change to every corner of the world, from Silicon Valley to Broadway, to the most remote farmer’s field.

In rural India, a impoverished tribe of rat-catchers has seen its fortunes significantly improved by the introduction of a simple, mechanical rat-catching device, which has significantly decreased rat populations, increased the food supply, and increased the incomes of the low-caste rat-catching tribe members.

The increased family income has enabled tribe members to send their children to school, which promises to improve the tribe’s literacy rate from an abysmal 1%.

It has also significantly increased local crop yields and thus the incomes of local farmers. On a global basis, about 20% of all crops are lost to rodents each year, so reducing the rat population is by no means a trivial matter.

Distributing the rat traps is a project of the Center for the Development of Disadvantaged People, an Indian non-profit organization.