Best Buy Strategic Initiatives to Changing Markets Katrina L.

LeVere Management/MGT-521 17 January 2012 Linda Begley

The Best Buy Company, founded in 1966, is a multinational retailer that offers video products such as televisions, digital cameras, digital camcorders, and e-readers. Best Buy offers DVD and Blu-Ray players, audio products, such as home theater audio systems and components, satellite radio products, and musical instruments. Best Buy also sales CDs, DVDs, Blu-rays, computer software, mobile phones, entertainment software, video gaming hardware and software, appliances, and housewares. Best Buy also offers warranties, product repair as well as delivery and installation services for home theaters, mobile audio, and appliances. Best Buys headquarter is in Richfield, Minnesota, and it employs approximately 180,000 people. Their employees serve customers through retail locations, websites, and call centers. The company, formerly known as Sound of Music, Inc., changed its name to Best Buy Co., Inc. in 1983. Best Buy is the only national electronic chain left after the closure of Circuit City in 2009 and Comp USA before that. Best Buy is a Fortune 500 company with stores operating in the United States, Canada, Europe, China, and Mexico. In 2011 Best Buy opened 134 opened new stores and closed seven stores within the European sector. Best Buy operates under brand names such as Best Buy Mobile, The Carphone Warehouse, Five Star, Future Shop, Geek Squad, Magnolia Audio Video, Napster, Pacific Sales, and the Phone House. Best Buy has managed to sustain its electronic chain even after the closing of Comp USA and Circuit City, which closed in 2009. Best Buy expanded and improved its business through improved technology and innovation. The company managed to stay in business despite competition, economic conditions, and other challenges faced through the years.

Economic Trends Businesses have been feeling the impact of the recent economic trends. Consumer job losses, decreased savings, losses on investments, depreciated homes, and increased debts have had major impacts on small businesses as well as the companies listed on the Fortune 500. Recent law changes governing credit card fees have protected consumers but businesses had to contend with less profits generated from credit card usage fees. There is the concern with future spending because of opposing economic forces due to the current state of the economy. Price deflation was projected to cause a demand for products but consumers cautious spending, high unemployment, and credit restrictions impeded projected sales. In 2008, electronic stores surged in the computer sector with a share growth of nearly five percent. The next year electronics revenue was $16,263 million, which was a decrease of 0.1% when compared to FY 2008. There is a projection that electronic sales will increase during FY2011 but there is room for concern. In 2011 Best Buy opened 134 opened new stores and closed seven stores within the European sector. The plan was not without risks, overseas operations exposed the company to the risk of currency fluctuations because of the dollars ability to strengthen and weaken against foreign currency. The currency fluctuation affected the company decisions on making overseas investments or bringing profits back to the United States. When Best Buy invested overseas, the risk of the declining dollar made it a challenge. When it repatriated its profits, the company did it when the dollar was at its weakest against that foreign currency. Economic trends can serve as an ally or a threat, Best Buy monitors economic trends so that it can adapt its business practices. The board of directors, managers, and employees are the internal stakeholders who work together to ensure company stays afloat during economic instability. Investors require updating on how well the company is doing so Best Buy provides

quarterly briefs and annual reports. External stakeholders also have an interest in what and how the company does, these include; investors, suppliers, customers, government, media, and competitors. Adapting to Changing Markets During the 1990s when the personal computer market took a downturn the company was stuck with unsold merchandise worth millions of dollars. The sale of MP3 players have caused deep cuts in compact discs sales. This technology along has led to purchasing music online. Online retailers like Amazon and Apple have chipped away at the companys ability to hold on to customers. Best Buy was not prepared for this type of technology causing a reduction in its sales. The online sales strategies of competitive prices and product availability have also made it difficult for the company to hold onto its customer base and to establish new ones. Tactics as simple as no sales tax when ordering online ate away at Best Buys sales. Online music sales have eaten away at the company CD music sales. These are just a couple of examples of how technology has impacted Best Buys business practices. The electronics retail business is very competitive and the companys strategy to stay in the business and remain competitive is to adapt. Globalization has caused Best Buy to adapt its business strategies by taking the United States merchandising lessons and applying them overseas. Best Buys adaptation to a changing market was to adopt a global plan that started with opening stores in Canada, Europe, China, and Mexico. The plan was not without risks, overseas operations exposed the company to the risk of currency fluctuations because of the dollars ability to strengthen and weaken against foreign currency. The currency fluctuation affected the company decisions on making overseas investments or bringing profits back to the United States. When Best Buy invested overseas, the

risk of the declining dollar made it a challenge. Personnel, language, technology, and climate are other concerns that the company had to make adjustments for when it globalized its operations. Best Buy established strategies to grow market share, increase connected digital solutions, increase international growth, and what the company called efficient and effective operations. These objectives are what Best Buy established to help improve the company. What Best Buy and many other businesses did not expect was the type of economic downturn the world market is going through. Best Buy, like its competitors Wal-Mart and hhgregg, have strived to be the best at what they do. To become the largest retailer of electronics took a collective effort from everyone in the company. Adapting to changing markets required Best Buy to think outside the box and take some risks. The company recently announced plans to reduce the square footage of what it calls its big-box stores by 10% during the next three to five years. They plan to add 600 to 800 small stores that will focus on mobile phones. Surprisingly Best Buy has only a 6% market share in mobile phones, compared with a 22% share in most items of consumer electronics. Best Buy managed to grow its market shares by increased revenue in the 4th quarter of fiscal year 2010. The company managed to increase its connected digital solutions; this was accomplished through the sale of mobile phones, televisions, and computers. International growth revenue increased in 2010 but the company presented no evidence of expansion of their Best Buy Mobile concept to the Canadian stores. The company integrated its Five Star and Best Buy operations in China and accomplished its planned synergies in Europe. Best Buys efficient and effective enterprise led to increased operating income that provided a source of revenue for the company in the year 2010. In 2009 Best Buy launched Twelpforce, a Twitter-based platform designed to connect its employees directly with customers to enable real time customer support. The philosophy was

to encourage the free flow of ideas and data from outside and inside the organization. Then Best Buy created what they called Blue Shirt Nation, one of their internal early social experiments designed to connect their employees from around the United States so its personnel could communicate with each other especially, beyond the workplace. Afterwards, Best Buy created what they called IdeaX designed to extend their outreach and invitation to connect to its customers and shareholders. Tactics to Achieve Strategic Goals Best Buy realized that to compete it must analyze its market, adapt its strategies, and execute with a purpose. The company implemented the Best Buys executive brick and click strategy that allows customers to order products either online or physically in one of their stores, also allowing them to either pick-up their order directly at a local branch of the store or get it delivered to their home. The purpose of this strategy was to empower its consumers to research and purchase products seamlessly, either online on in its stores. Their online shopping sites offer expanded inventory to Best Buy products to include its acquisitions. Best Buys acquisitions are The Magnolia, The Geek Squad, Pacific Sales, Best Buy Mobile, Speakeasy (Data; Telecom services), and Napster. The Magnolia acquisition allowed Best Buy to start selling its own audio and video products at a cheaper price. The company currently offers in-store promotions called, The Magnolia Home Theater Store-within-A-Store. Residential and commercial product repair, support, and installation services resulted from The Geek Squad acquisition. The company wanted to offer its customers a smooth transition between buying its product and bring it home. The acquisition of Pacific Sales allowed Best Buy to expand their product section kitchen and bath, focus on the buying power of builders and remodelers, and the opportunity to grow a customer base. Best Buy Mobile is a plan the will add 600 to 800 small stores that will focus on

mobile phones. Surprisingly Best Buy has only a 6% market share in mobile phones, compared with a 22% share in most items of consumer electronics. There is plenty of potential for growth. Speakeasy (Data; Telecom services) was acquired for its data and telecommunications services like VoIP (Voice over Internet Provider). The company recently launched its Integrated Voice offering, a service the vendor said is cheaper than replacing traditional business phone lines. The Napster acquisition was mainly an interest in Napsters mobile business to help bolster Best Buy Mobile marketing power. Best Buy changed its business model to a customer centric model. Each store custom tailors their strategy to target market segments to certain groups in their local area. Stores managers received training to target customer lifestyle groups instead of customer groups like; affluent suburban families, trend-setting urban dwellers, and closely knit families of Middle America. Human Resources Human resources professionals help companies achieve their business goals in numerous ways. Best Buy partnered with Accenture for support in developing new capabilities and improving effectiveness within their organization. Accenture manages Best Buys HR call center, which currently answers more than 80 % of employees inquiries, 24 hours a day. According to Best Buy, customer centricity requires the company to take full advantage of the creativity and talent of each of their employees in all of its stores across the country. Cost and quality control, training and development, turnover and retention, and compliance management are some of the ways human resources professionals accomplish their goals within an organization.

Human resources professionals helps Best Buy save money by developing compensation packages, employee assistance programs, and benefit packages. Best Buy offers its employees a competitive pay and incentives package that is managed through their corporate offices. Globally, Best Buy focuses on four reward systems for its employees: benefits, learning and development, work environment, and compensation. Best Buy offers several recognition programs some of which are enterprise-wide, and some locally based. These programs include the Best Buy Europes Thank You program, Achievers program, Chairmans Award, and the Five Star presidents award. Best Buy paid bonuses to eligible United States employees midyear. The company also spent 12 million dollars on Blue Crew Bucks, a bonus program for store level employees including part-time. Most of their health, paid time-off, and retirement programs were designed to meet the needs and wants of its employees based on their geographic location, which includes employees in the United States, Europe, Mexico, Canada, and China. The human resources department is responsible for creating training programs to strengthen the quality of work within the company. Upgrading employee skills can increase organizational and individual performance, which produces positive business results. Assessing training needs, creating training manuals, and ensuring training objectives are met are all the roles of human resources in training and development. In the United States, Best Buy trains their employees by encouraging them to use their newly created platform called the Learning Lounge. The Learning Lounge consists of videos, documents, and audio files that employees can download to an MP3 player. Employees can access the site wherever there is an Internet connection at any time or location. Approximately 70% of the information provided to Best Buy came from its vendors; this makes the site cost-effective and includes up-to-date information about the services and technology products Best Buy offers. An employee survey revealed that

93% of retail employees took courses through the Learning Lounge. Last year, employees completed more than 406,000 required certification and nearly 4.3 million. Carphone Warehouse in Europe began to offer laptops, mobile broadband, and other connected services more widely due to changes in product offerings within the past year. A training program was put into place that allowed all of the United Kingdom retail employees to attend a wireless boot camp- a course for 8, 000 employees that provided training about the new products and services. Each employee who passed the test was rewarded with a new personal laptop. In addition to elearning, face-to face training is another option for employees to receive training such as the new employee training and orientation, monthly weekend training sessions in the stores, and all-store meetings which are held throughout the year. Best Buy has expanded into other cultures, therefore their training materials on diversity and other topics were translated into several languages and introduced in a manner respectful to the culture. One of the greatest challenges within an organization is keeping the employees happy. Human resources play a significant role for attaining goals regarding turnover and retention. Their job is to attract the most talented and qualified applicants, motivate the current workforce, and influence long-term commitment to the organization. At Best Buy it is important that all employees stay connected. Employees were invited to communicate their ideas and concerns that allowed them to have a voice in the company. This leads to a highly engaged workforce that understands, participates, and shows concern. Best Buy has implemented programs such as the Employee Business Network (EBN), which is based on an interest in and support for a common dimension of diversity such as age, race, gender or sexual orientation. Thousands of employees participated in more than 175 EBN chapters, including 32 new EBN chapters that the company formed last year. Best Buy also has eight Focused Involvement Networks (FIN). Connecting

employees goes farther than sharing and support. These networks serve as a venue for employees to develop ideas and plan projects. Networks reduce turnover, develops leaders, and captures insight that helps the business expand. Best Buy measures employee engagement across their enterprise using the Viewpoint survey. The survey results helps managers understand what they are doing well and the areas requiring improvement. Plans will be developed based on the survey results, which focus on improving employee experience. An Employee Satisfaction Index (ESI) survey is administered bi-annually to the United States retail stores. The ESI measures employee satisfaction and commitment. It also provides insight into 17 different dimensions of the workplace environment. These insights give managers direction on how to improve the workplace experience, which increases employee satisfaction and loyalty. Human resources professionals handle the dispute resolution operations and labor relations of an organization. Their job is to make sure that the company is knowledgeable of the federal and state employment laws in reference to wage, labor, and equal opportunity requirements. Enforcing these rules helps companies avoid lawsuits and liabilities when problems arise between employers and their employees. Best Buy has three priorities for governance compliance and ethics: maintain a sound leadership structure, stay on top of the issues, and engage in open and honest communication about Best Buys values and interests. Best Buy follows the laws, policies, and regulations set by governments in the areas where they do business. Led by the chief compliance officer, Best Buy has a team that monitors and addresses legal issues and creates policies that ensures Best Buy is adhering to the law. The compliance team identifies legal issues that help alleviate corruption, protect the environment, and makes sure the product is safe for the customers. Best Buy received an award for their work in obeying the United States Foreign Corrupt Practices Act. Privacy is another concern that Best

Buy follows closely. To enhance privacy standards that will protect personal data across the United States Best Buy works with the Retail Industry Leaders Association (RILA) and the United States Federal Trade Commission (FTC). Legal and compliance guidance provided to Best Buys marketing and transaction teams on behavioral advertising and mobile marketing ensures the customers personal information is kept confidential. Conclusion Since its opening in 1966, Best Buy has grown steadily and enhanced its business through inspired innovations. The company has strived to transform itself into a dynamic, customer-driven, talent-powered company focused on enhancing their customers enjoyment of technology. Best Buy has seen significant challenges through the years and they have learned, changed, and grown from each of these challenges. Best Buy has seen some good times and some challenging times during its existence. The company has adapted practices to help improve the companys practices, operational processes, services, and most of all profitability. The company has done well selling electronic merchandise; this was indicated by its listing on the Fortune 500 list. A true testimony of how well the company is doing is its financial health. Best Buy financial health is good as indicated by the companys financial statements. The company is profitable but Best Buy it must continue to adapt to stay ahead of their competition. As a mutual fund manager, I have analyzed the companys beginning to present. I would invest in this company. The companys founder, CEO, and executive staff have guided the company through this countrys changing times. After its opening over 45 years ago the company has weathered the storm of change. Best Buy has managed always to adapt its business practices to meet the constant demands required in the electronics consumer world. Best Buys status on the Fortune 500 list required its competitors to take note of its success. This is a

testament to the companys ability to adapt its business practices to meet its stakeholders needs. Reviewing each of Best Buys financial statements has shown me why the company has managed to make profits however there is some concern about the companys most recent total assets and total liabilities. Financial statements tell a story about the activities that take place during the fiscal year end, which management can use to make adjustments to the way they conduct their business. Financial statements serve as a tool that measure a companys success or failure. With its internal and external stakeholders watching management must compare year after year results along with its strategies to ensure their projected goals will be met. Also the company can compare itself to its competitors to further analyze if its business practices are generating competitive revenue and cash. Best Buy has established itself as the number one retailer of consumer electronic, home office products, entertainment products, appliances, and related services. It is ironic that technology would be its Achilles heel.

References Robbins, S. P., & Judge, T. A. (2011). Organizational Behavior (14th Ed), Upper Saddle River, NJ: Pearson/Prentice Hall Best Buy (2011), About Best Buy Co., Inc.: We Make Technology Deliver On Its Promises. Retrieved from http://pr.bby.com/phoenix.zhtml Crowdsourcing (2011), Best Buy Best Practices: A Lesson in Crowdsourcing. Retrieved from http://www.crowdsourcing.org/editorial/best-buy-best-practice-a-lesson-incrowdsourcing/3768 Cable News Network (2011), CNNMoney: Fortune 500. Retrieved from http://money.cnn.com/magazines/fortune/fortune500/2011/snapshots/10034.html Wal-Mart (2011), About Us: Purpose, History, and Culture. Retrieved from http://walmartstores.com/AboutUs/ Hhgregg (2011), Corporate Info,: About hhgregg. Retrieved from http://www.hhgregg.com/content2/about_us Zacks Investment Research (2011), Markets: Financials. Retrieved from http://www.zacks.com/research/report.php University of Phoenix (2011). SWOT Analysis. [Computer Software]. Retrieved December 26, 2011, from University of Phoenix, resources, Simulation, MGT521 Management Website. Accenture (2012), News :Best Buy: Customer Centricity. Retrieved from http://www.accenture.com/us-en/pages/success-best-buy-customer-centricitysummary.aspx