Why Best Buy has always had the best
strategy
Two new roads in search of continuous renewal
n the few decades since corporate strategy really took off as a serious academic
discipline, several luminaries such as Michael Porter have made their mark by
developing a theory, refining it and testing it, and in turn having a huge impact on how
the subject is studied by business students and practitioners alike. Other academics have
tried to challenge the theories, pick arguments or just plain put down these seminal theorists.
Others tinker with the formulae to try and make their own impact. However some try to
genuinely expand on the original and attempt to take it into new directions and dimensions
that, crucially, take account of the rapid changes in business practices.
I
An example of early corporate strategy theory is a matrix devised by Gary Hamel and CK
Prahalad that shows the importance of core competencies to an organization, and can be
used to develop strategies to take advantage of those core competencies. This is done by
plotting existing and new competencies alongside existing and new markets, which reflects
the competencies needed to consolidate position and compete in the new areas. But are
these the only choices open to firms where competencies are concerned?
Accident or design?
In the 1980s and 1990s there was a CEO of a UK pest control business nicknamed ‘‘Mr 20
percent’’ on account of his promises to grow the company by this much each year. He pulled
the trick off for several years, but not unsurprisingly he eventually became unstuck – but how
much of his and the company’s success down to cunning strategy, or luck? Similarly, did
Steve Jobs know how successful the iPod would be when he signed off Jonathan Ive’s iconic
design in 2001? And therefore, were future designs and functions based around it to gain
continuous growth? The answer is of course a mixture of the two, however some strategists
think that firms can at least maximize their capabilities to ensure the best chance possible for
year-on-year growth. This involves more than merely assessing core competencies, but
sometimes doing away with them altogether.
Existing or new?
One of the trickiest business decisions surrounds the entry into new markets or areas of
expertise, as they come with three problems: competition for resources between business
units is intense, the question of the allocation of those resources fraught with difficulty, and
these questions often lead to confused management and blurred vision in assessing what is
best for the business in the short-term and long-term. However these problems seem to lie in
the assumption that whatever decisions are made are for the survival of the business in its
current state, and some argue that incredible speed of change, radical ideas and huge
adaptability are needed to set sights much higher by risking the very core competencies that
are judged key for the firm’s equilibrium in a strategy known as ‘‘creative destruction’’.
DOI 10.1108/02580540810860823
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‘‘ Did Steve Jobs know how successful the iPod would be when
he signed off Jonathan Ive’s iconic design in 2001? And
therefore, were future designs and functions based around it
to gain continuous growth? ’’
Present or future?
What is important is that everything has to be on the table when firm’s start to make choices
about competencies and markets, but the decision regarding time can still be muddled. In
their article ‘‘Continuous renewal, and how Best Buy did it’’, Bala Chakravarthy and Peter
Lorange argue that businesses can have the best of both worlds by developing the Hamel
and Prahalad matrix and adding two new dimensions – leverage and build. Leverage
involves entering new markets, but leveraging existing competencies and adding new ones.
Build involves new competencies actually being created such as assets or new skills, and
together with leverage forms a fluid model where the present is not juxtaposed with the
future, but ‘‘morphs’’ into it.
Evolution or revolution?
Using a case study of the US electronic retailing giant Best Buy, the authors seek to show
how its phases of development since the early 1980s have seen it grow into the biggest
name in its market with 16 percent share and sales of $130 billion in 2006. From humble
beginnings of a single store in St Paul, Minnesota in 1966, it steadily grew until it started to
formulate its strategy more radically and things really took off. Six phases were identified that
involved leverage and build in varying degrees:
(1) 1983-1988 – Leveraging competencies to develop a state-wide chain of stores.
(2) 1989-1994 – Became every day, low price cost leader, expanded market reach and
became much more operationally efficient through build and leverage.
(3) 1995-1998 – Built a hybrid strategy of low end and top end product offerings while
leveraging competencies to expand reach further.
(4) 1998-2000 – New digital products meant a new strategy of building skills to become the
retailer of choice to help consumers.
(5) 2001-2004 – A blend of building new skills to keep pace with technological change and
acquiring new stores in new territories, along with leveraging retailing skills.
(6) 2004 onwards – New CEO wanted to increase customer focus and developed
concentrations on different consumer groups to ward off being squeezed by general
retailers such as Wal-Mart moving into electronic retailing.
Right or wrong?
The final question concerns whether what proved successful for Best Buy in its particular
market and sector could be duplicated for other businesses. Perhaps other firms could learn
from the new model and Best Buy example by renewing and improving on competencies
continuously, committing to profitable growth, set aspirational goals, renewal of vision as well
as execution and constant monitoring and reaction to market demands.
The key to the expansion of the decision matrix into leverage and build and the example of
Best Buy, is for organizations to realize that decisions based on competencies and markets
do not occur in isolation, as a matrix suggests, with a snapshot in time of the firm’s situation. It
is a constantly evolving picture that develops over time, and like Best Buy will have small
eras of a few years defined by one or two characteristics or visions. Rather like a trickle of
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‘‘ Decisions based on competencies and markets do not occur in
isolation, as a matrix suggests, with a snapshot in time of the
firm’s situation. It is a constantly evolving picture that
develops over time. ’’
water finding its way across a path of least resistance, the momentum of the business must
always be maintained.
Comment
Keywords:
Corporate strategy,
Organizational development,
Competitive advantage
The article ‘‘Continuous renewal, and how Best Buy did it’’, by Bala Chakravarthy and Peter
Lorange in Strategy & Leadership, seeks to provide a development on original work by Gary
Hamel and CK Prahalad by adding two further dimensions to the traditional strategy of
renewal. It is a fascinating insight into strategic development, complemented by a case
study of major US retailer Best Buy. It is an intriguing study, and it would be interesting to see
the model developed further and tested against other organizations in different market
sectors.
Reference
Chakravarthy, B. and Lorange, P. (2007), ‘‘Continuous renewal, and how Best Buy did it’’, Strategy
& Leadership, Vol. 35 No. 6, pp. 4-11.
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