Best Buy Corporation - S. Bensen, A. El Haddi, K. Fitzsimmons, A. Hussein, H.

Marotske -- UST EMBA

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1]

Best Buy Corporation: Strategic Management Analysis

S. Bensen, A. El Haddi, K. Fitzsimmons, A. Hussein, H. Marotske

Strategic Management
University of St Thomas, College of Business
Executive MBA program, Cohort 62

Abstract
Best Buys news coverage of the last few years has been consistently negative. The companys performance and
reputation suffered greatly. Its Earnings per Share fell by more than 200% in 2012 alone. These negative events were
the result of governance problems, a changing market landscape (cloud computing, music streaming, online
purchasing, online gaming, etc.) and a significant leadership turnover in a period of crisis. The companys value
stream is in a state of flux and could be said to be a master of none at this time. This paper presents strategies to deal
with these problems by creating a strategic road map that will first stabilize Best Buy and eventually put it on a
growth path. As a result of our analysis, we recommend that the company employs new strategies that include
growing its online business by capitalizing on Geek- Squads expertise and exploring an internal fix-it strategy with
the development of a compelling mission and vision. Finally, we recommend that BB explore the formation of an
alliance with its rivals and leverage opportunities presented by new markets.

1. INTRODUCTION
The purpose of this paper is to examine Best Buys (BB) strategies using SWOT, TOWS
and value stream analysis. It proposes business strategies that can mitigate BBs current
organizational problems and improve its competitiveness.
Founded in 1966, BB is a retail consumer electronics business that owns 1150 big box and over
100 express stores around the globe. Its holdings include CinemaNow, Geek Squad, Magnolia
Audio Video, MindShift and Pacific Sales. Best Buy sports a large array of brands as shown in
figure 1. Best Buys competitors include Amazon, Walmart, Radio Shack and the world of online
retailers.
As of this writing, sales are flat around 50 Billion dollars and its growth is declining from
an average CAGR of 7%. Its earnings per share have declined by more than 200% in the last year.
i
Additional performance data is shown in the appendix). In 2012, Best Buy pulled out of the UK ,
ii
removed the founder and chairman of the board , closed many stores, reshuffled management and
iii
is trying to deal with its own governance issues . In addition, BB is facing a significant market
iv
v
paradigm shift towards online e-commerce , mobility, cloud computing, internet taxation , music
and video streaming. In section 2 we discuss the value streams, followed by a SWOT, a TOWS
and we finally propose several strategies to address Best Buys stagnation issues.

Figure 1: Best Buy brands.

2. BEST BUY VALUE STREAMS

Organizations can pursue one of the following value streams: Operational Excellence
(OE), Customer Intimacy (CI) or Product Leadership (PL). They must master at least one value
stream in order to succeed in the market place.
2.1 Value streams defined

Organizations that pursue OE lead in overhead cost minimization and convenience maximization
by designing and deploying processes and systems that drive efficiency whether in production or
in delivery of goods or services.
Companies whose objective is CI pursue fine customer segmentation. CI seeks to address the
needs of individual customers by delivering the right product at the right place, the right time and
at the right price. PL value discipline focuses on designing and delivering a continuous stream of
innovative products or services. Businesses pursuing PL must be creative (open minded, embrace
external ideas, encourage new ideas), bring products to market quickly (flexible rapid engineering,
agile methods, concurrent product development, rapid marketing and early distribution) and they
must continuously raise the bar by creating new solutions, new products or by adding new
features. Table 1 illustrates our classification criteria used to discern Best Buys value streams.
2.2 Best Buy value proposition in a state of flux

As of this writing, Best Buy is making decisions that will impact its future existence. For
example, management issued a press release (Oct 2012), to announce the streamlining of the
organization by refocusing on connectivity, online retailing and customer service. The company
fired the vice president of operations and his senior staff. The CFO has resigned and is stepping
vi

down in February and the CTO and founder of Geek Squad have left as well. BBs new direction
and its value stream is in a state of flux. Hence, we will focus on existing details and try to predict
the future direction.
2.3 Best Buy Value Streams and the competitive advantage

Best Buy is attempting to focus on cost leadership as a competitive advantage. The problem is
that customers often use it to browse in the store, try products, and get questions answered. Then
they make purchases online for a lower charge, from Amazon or other competitors web sites.
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This Showrooming behavior is increasing Best Buys costs, which does not translate into
lower prices for the customer (except for the ones with access to free financing such as small and
medium businesses). Best Buy is using focused differentiation by leveraging Geek Squad
expertise and knowledge, which is hard for Amazon to imitate due to the personal attention it
requires. Geek Squad has an army of technicians who visit customers homes to install and
service purchased goods. The technicians also provide lessons to customers without sales pressure
(Something BB was accused of doing in the past). Best Buy extends zero financing for 1-2 years
to select consumers (The most frequent and large item purchasers). This lowers customers prices
and reduces BBs cost of customer acquisition through retention and repeat purchases. Therefore,

Competitive scope

we believe Best Buy is using a hybrid of focused differentiation and focused cost leadership
(Figure 1). However this competitive advantage may not last as Wal-Mart edges into this business
segment and as regulations address the business of credit financing.
Competitive advantage

COST

Uniqueness

Figure 1: Hybrid focused cost and differentiation as a competitive advantage

Furthermore, Table 1 shows a cluster view of how Best Buy ranks compared to its competitors in
terms of OE, CI and PL.
We believe that Best Buy is attempting to be a master of two value disciplines with some
successes and misalignments (See table 1 for details). A quick scan of the print and social media
shows a bureaucratic organization that is not keeping pace with change. The company claims to
avoid top down management. Yet, the sales associates who are in direct contact with the customer
are not empowered to deal with customer issues; Management has to approve non ordinary issues
with transactions even if they impact the customer directly. A visit to a new store shows that
customers may feel lost even after the new initiative of remodeling some stores. It takes more than
3-5 minutes before an initial contact with the customer (It is interesting that the older stores had a
greeter and the initial contact happened within 15 seconds of entering the store). The company is
in a consumer electronics sea change and a paradigm shift accelerated by changes to cloud
computing, music and movie streaming, online purchasing, internet tax and credit card legislation.
Hence, the corporation is in a slow re-invention and reactive modes. For these reasons, we believe
that the company is focusing on Operational Excellence first and on Customer Intimacy second
(Figure 2). Best Buys attempt to be a product leader as well was a failure (Initiatives about
Mobile application development and other off the shelf commercial software and Skunk works
attempts were aborted after birth around 2010). In October, the company reshuffled its operations
management by laying off the veteran operations management and a new focus on mobility,
customer service and online retail emerged as a new goal.

Figure 2. Best Buy as a master of Operational excellence and nearly a master of customer intimacy. The company also had some initi
PL

OE

CI

Figure 2: Best Buy Value Streams

3. SWOT ANALYSIS (Strengths, Weaknesses, Opportunities and Threats):

A detailed SWOT analysis is shown in table 2. The following is a SWOT summary.

3.1 Strengths
Company size and extensive (domestic and global) distribution network
Core competency in technology services through Geek Squad
Well-known brand
Strong past performance
Robust internet presence and online infrastructure
3.2 Weaknesses

Major governance Issues

Recent senior leadership turnover in the midst of a crisis (governance, market shift)
Weakening financial situation
Too many brands
Poor inventory management

3.3 Opportunities

Emerging global markets (rising middle class and oil wealth, rebalance of global power,
etc.)
Quick obsolescence of mobile technology (Requires frequent upgrades, repurchases)
Online purchasing is becoming more prevalent
Increasing need for IT outsourcing
Economic recovery: Small-midsize businesses and households may resume purchasing

3.4 Threats

Shareholder lawsuits against value destruction, governance

Limited number of suppliers; growing power of wholesalers who are also becoming
competitors: (i.e. Apple stores in malls).
Online competitors set up brick and mortar distribution warehouses due to internet taxes
Exchange rate fluctuation
Low frequency of Television upgrades
Cheap retailers such as Walmart moving in
Financial legislation and compliance: credit cards, financial instruments
Unemployment and recession impact on discretionary income

4. TOWS MATRIX AND STRATGIES

Based on our SWOT analysis, we developed a TOWS matrix (see table 3), and as a result, we
propose the following strategies. It is imperative that BB clarifies its value stream by revamping
its structure, developing a culture and governance to increase the companys intrinsic value.
4.1 Growth Strategy

This strategy must be accompanied by a new pricing structure that deters showrooming.
Best Buy has strong brand recognition which should be utilized for expanding online market

share. In addition, by taking advantage of connectivity and the companys infrastructure as well as
its free computational cycles, BB could implement a platform of software as a service (SaaS)
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using concentric growth. Furthermore, In 2011 Best Buy acquired MindShift Technologies , a
managed services and iCloud services company for business owners and customers. Combined
with the Geek Squad technology expertise, Best Buy can leverage these factors to differentiate
offerings from other traditional brick and mortar consumer electronics stores. In an effort to be
perceived as cutting edge, the organization should target high visibility early adopters on social
media platforms. Best Buy must continue being on the front lines for social and mobile
consumers. We also recommend that the company develop an aggressive international growth plan
in markets with rising discretionary incomes and laws mandating shifts to high definition
frequencies.
4.2 Internal Fix-It Strategy

BB must review spending in connectivity, services, online, retail and home and pay special
attention to the power of suppliers such as Apple, Dell, HP, etc. The corporation must re-vitalize
its enterprise wide training about new technology and perform an internal audit of how they are
using their Big Data and Analytics initiatives to make thoughtful strategic decisions. It is
imperative that BB take advantage of its own consumer insights and market intelligence to
anticipate changing trends.
BB does not have a published mission or vision statement on its website. The organization
should create a new, compelling mission and vision that gets employees excited, re-energized and
engaged. In addition to closing non-performing stores, the use of in-store square footage and the
companys pricing strategies must be reviewed. To be competitive, a clarification of value streams
is needed (i.e. for OE treat stores as additional channel of distribution; for CI ensure items are
available to deliver when purchased by the consumer, empower associates, custom choices
through online near infinite selection etc.).
4.3 External Fix-It strategy

BB needs to rethink its strategy for new markets and cultivate plans to integrate cultural
and economic factors by developing specific entry strategies for emerging markets that have a
growing discretionary income and a desire for electronic status symbols. This should be done by
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leveraging a concentric diversification strategy and understanding how other cultures use retail
and mobile technology differently than North Americans (i.e. mobile payments, money transfer,
pay as you go, etc.) BB may face state owned or supported monopolies in mobile technologies.
Thus, it must explore cooperation with state capitalism drivers as a market penetration tactic.
In an effort to capture early adopters and be perceived as a progressive company, they should
seek exposure to a captive social media community of people in public relations, journalism,
advertising, music and film who can champion BBs brand and create opportunities to expand the
enterprises affiliate marketing channel reach. This will differentiate BB from Wal-Mart, Apple,
Amazon and others. BB must also ideate innovative strategic alliances and partnerships with other
companies and organizations that align with the brand.

4.4 Eliminate/Survive strategy

We believe that some of the following strategies may be required:

The company should consider a merger with rival Amazon

Explore new ideas and unique integration with suppliers
Close the least profitable stores and invest the resources in further vertical integration
Evaluate use of in-store square footage and consider leasing space in the corporate office
Assess internal spending, financing and hedging to protect against currency risk
Review pricing strategy since a big portion of profits is derived from margins on
accessories, home theatre and extended warranty protection
Review debt financing, cost of capital and capital structure

5. DIRECTIONAL STRATEGY
Best Buy has traditionally been on the cutting edge of the consumer electronics market. Not
long ago its largest competitor, Circuit City, folded. Best Buy will have to first leverage the new
consumer habits of mobile shopping and cloud computing. The effective execution of these
strategies could and should help propel Best Buy to remain among the leaders in consumer
electronics. However, the future of the company remains uncertain. We recommend a directional
strategy that is a blend of stabilization, retrenchment and growth with an emphasis on Growth.

6. EXAMPLE OF A NEW GROWTH STRATEGY

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Based on our analysis above, we propose the following concentric diversification growth
strategy:
Leverage Best Buys existing resources to pursue opportunities in cloud computing, virtual
sales and affiliate marketing. Best Buy has a strong internet presence, an extensive cyber
infrastructure and brand image. The company will use its existing infrastructure and idle
network and computer time to service a big need of small to medium businesses (SMB):
selling their goods and services online world wide and delivering managed services around
produced solutions
The target market includes software companies, game developers, small music and movie
producers
BB will be a virtual processor, a technology provider and a fulfillment partner that leverages
its own infrastructure to offer e-commerce, automatic payments and online distribution for
the SMB companies who are not in a position to sell directly to the same customer segment
targeted already by BB. This will enable BB to increase the utilization efficiency of its
existing infrastructure and expand its sales of the high margin service worldwide
We propose a revenue sharing model, in addition to charging a subscription for using BBs
big data analytics and hosting the online store for third party vendors.

Best Buy Corporation - S. Bensen, A. El Haddi, K. Fitzsimmons, A. Hussein, H.

Marotske -- UST EMBA

Project Name and Objectives

Project managers:
The lead project manager
must be hired from outside
to bring in new ideas. The
manager must be a product
development manager. The
manager must have
experience in cloud and
mobile computing and
online retail.

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Project Name: Internet Affiliate Marketing and Services

Project Objectives: Provide virtual stores and marketing for small to
medium technology companies that target the same segments targeted by
BB for complementary products.
Marketing: Interactive
marketing manager
The trio will design a solution that will
provide services for small to medium
CTO: iCloud CTO
technology companies to deliver
solutions to the market place. The
Customer Service: Geek
managers will work across boundaries
Squad Service
and lead strategy making.

Best Buy Services

Provide internet services, online ecommerce. Geek Squad and Managed
IT services will provide premium professional services around a select
number of technologies sold directly through the online stores and
delivered by affiliates.
Structure of operation
The unit will operate as a startup within BB. This may cause resentment
from other divisions.
Culture
The unit is chosen to combine the unified geek culture within BB,
provide freedom to innovate and agility to deliver products faster.
Focus on self-managed teams with leads.
Competitors

Amazon, Digital river, Google

Best Buy Corporation - S. Bensen, A. El Haddi, K. Fitzsimmons, A. Hussein, H.

Marotske -- UST EMBA

APPENDIX, TABLES AND GRAPHS

Best Buy Stock Value

Best Buy Quarterly Revenues (Billions of dollars)

Best Buy earnings per share declined by more than 200%

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Table 1: Best Buy Value Stream Characteristics

Operational Excellence

Reliance on information systems in

logistics to reduce costs
Reliance on Big Data, complex event
analytics to maximize sales
Outsourcing of support and other IT
activities (i.e. IBM, SITEL) to reduce
costs and focus on core competencies
Bureaucratic and hierarchical
organizations (Titles matter a lot inside
the company).
Established procedures of doing business
with less leeway for deviation.
Automated logistics and product
aggregation
One size fits all products (sell what we
have)
Turnover in experienced senior
management.
Extensive use of social media inside BB
to attempt to gather cost reduction ideas
Extensive use of predictive behavior
models.

Customer Intimacy

Use of personal shopping assistance

Store access, presentation,
assistance (Mixed results, upgrade
with newly remodeled stores: i.e.
Eden Prairie).
Use of Geek Squad to help service,
guide, assist rather than just sell
Well trained teams on the floor (But
high turnover with College kids).
Takes too long before initial contact
with associate.
Heavy use of Big Data Analytics and
complex event analytics and attempt
to focus on the 7% of the customers
that generate 43% of sales.
Reward programs, zero financing for
select customers.
Attempt to focus on personal
computing, media and mobile needs in
one stop shop.
Integration of product selection, sales
and service value chains.
Extensive use of social media inside
BB to gather ideas about servicing the
customer(Blue shirt nation, loop
market place, predictive models)
Extensive use of predictive
behavior models.

Product Leadership
Attempts to develop own
Mobile network.
Attempt to develop own
Commercial off the shelf
software (Failure attempts)

Best Buy Corporation - S. Bensen, A. El Haddi, K. Fitzsimmons, A. Hussein, H.

Marotske -- UST EMBA

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Table 3: Best Buy SWOT

(S)trengths

(O)pportunities

Largest consumer electronics retailer/ Reputable Brand Name

Growing global demand for consumer electronics:

China 22%
Diversified portfolio of product offerings

Middle East 20%

International business acquisitions

Russia 20%
Reputation for excellent customer satisfaction

South America 17%

Customer centricity, through an end-to-end model
A more knowledgeable, savvy, consumer base willing to use the internet for
Level of service is unparalleled by competitors
product purchases

Highly trained staff

Dissolution of number one competitor; Circuit City

Reputation for retaining highly skilled and talented staff in

New business ventures i.e.; Best Buy and Car phone Warehouse
the consumer electronics industry.
Further expansion of chain through mobile stores
Provides in-store value added services; customer service, repairs,
No other pure consumer electronic retailer near Best Buys market share
interactive product displays.
Rapid obsolescence of technology and increased needs to upgrade
Strong growth strategy
Gadgets as a status symbol
Financial strength
Economic recovery

Revenues of $16.26 B |Profits of $651 M in 2011

10. Weak dollar against other currencies (helps exports)
10. Capitalizes on economies of scale i.e.; cost advantages
11. Growing mobile applications
11. Strong advertising budget | increases store foot traffic
12. Physical stores | convenient locations

Just under 4,000 world wide

13. Online presence
14. High levels of community service and local involvement.
(W)eaknesses
Marketing goals too broad
Weakening financial position

28.7% decrease in net income (08 09)

Increase in long-term debt due to multiple acquisitions

Decrease in available cash due to rising inventories and

accounts received.

Increased costs associated with the Customer-Centric

operating model training of employees
Top leadership turnover at crucial time (need for increase in
connectivity strategy)
Dependence on few suppliers

5 suppliers represent one third of all purchases; Sony, HP,

Samsung, Apple, Toshiba
Physical stores
Impact of class action lawsuits
Many (11) brand names
Deterioration of strong ethical culture touted by company
No strategy for cloud computing, Software as a Service(SaaS),
Platform as a Service(PaaS)
10. Governance issues
11. Poor inventory management systems
12. Poor inventory communications to customers

(T)hreats
1.

Rise of many competitors - loss of market share and loss of revenue

Unspecialized discount retailers i.e.; Wal-Mart, Target and Costco +
Others such as Sears
Online retailers (i.e. Dell, Amazon, eBay)
Entertainment software stores i.e.; GameStop. Office supply stores i.e.;
Staples, OfficeMax, and Office Depot.
Home improvement retailers i.e.; Home Depot and Lowes. Small
retailers with little overhead (including internet vendors).

2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.

Legislation restoring internet taxes, thus forcing online retailers to

establish brick and mortar stores (case of Amazon now).
Legislation regarding credit cards and other financial instruments
Shifting IT market to cloud computing, SaaS and PaaS architecture
(What to do with geek squad who is geared to desktops rather than
cloud? misalignment, desktop sales & service)
Distressed economy + Fall in consumer spending especially
discretionary spending
Moderate to high bargaining power of suppliers
Rising labor wages + Skills required for cloud services
Regulations negatively impacting private-label credit cards i.e.;
decreasing revenue streams on domestic sales
Domestic market for consumer electronic products maturing i.e.; flat
panel television market

Most of Best Buys revenues come from TV sales

Chinese imitation goods with very low margins
Very high risk of a shareholder legal action + Former founder value
destruction through offer/offer withdrawal
Trade wars with China, protectionism
Overseas American businesses as a soft targets to international
terrorism
Cyber-crime, cyber war attack on internet infrastructure and other
business discontinuity events(Natural or man-made disasters)

Best Buy Corporation - S. Bensen, A. El Haddi, K. Fitzsimmons, A. Hussein, H.

Marotske -- UST EMBA

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Table 3: Best Buy TOWS Matrix

(O)pportunities
1.
Internal
Assessment

2.
3.
4.
5.
6.

External
Scanning

7.

(T)hreats

Growing global demand for consumer

electronics
China 22%, Middle East 20%, Russia
20%, South America 17%
A more knowledgeable, savvy, consumer
base willing to use the internet for product
purchases
Dissolution of number one competitor;
Circuit City
New business ventures i.e.; Best Buy and
Car phone Warehouse
Further expansion of chain through
mobile stores
No other pure consumer electronic retailer
near Best Buys market share

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Rise of many competitors - loss of

market share and loss of revenue
Distressed economy, low spending
Moderate to high bargaining power of
suppliers
Rising labor wages
Regulations negatively impacting
private-label credit cards i.e.; decreasing
revenue streams on domestic sales
Domestic market for consumer
electronic products maturing i.e.; flat
panel television market
Long life of TV sets
Direct competition with suppliers such
as apple stores.
Rising wage rates
Shareholder lawsuits

(S)strengths
1.

2.
3.
4.
5.
6.
7.

Largest consumer electronics

retailer/ Reputable Brand Name:
Diversified portfolio of product
offerings, International business
acquisitions
Reputation for excellent
customer satisfaction;
Financial strength
Online presence
High levels of community
service and local involvement.
Geek Squad: Service, Training,
Support
Strong leverage of Social Media

S-O Strategies: GROWTH

1.
2.
3.
4.
5.
6.

Develop aggressive international growth

strategies [New markets/New geographical
markets ]: S1-S4/O1
Software as a Service: Cloud computing: S1S4/O1
Leverage Remnants of Geek Squad to educate
customers + Managed services
Explore a growth strategy with vertical
integration components.
Develop Strategy for expanding online market
share[S7:O1-O7]
Build visibility of inventory to customers [S2S4:O1-O7]

S-T Stratgies [External Fix-t]

1.

2.
3.
4.

Develop entry strategies for emerging

markets with growing electronic consumer
population and high economic growth
rate.[S1-S7/T1-T9]
Explore integration with suppliers[S4:T8]
Develop aggressive international growth
strategies
Cooperate/Partner with others such as
Amazon [W11:O1-7]

(W)eaknessess
1.
2.
3.

Marketing goals too broad

Weakened financial position
Top leadership turnover at
crucial time (need for increase in
connectivity strategy)
4. Dependence on few suppliers
5. Physical stores
6. Impact of class action lawsuits
7. Many (11) brand names
8. Weak skills in Cloud computing
9. Deterioration of strong ethical
culture touted by company
10. Incongruent pricing structure
11. Logistics/Product availability
12. TV sales are a high% of total
revenue

W-T Strategies [ Eliminate / Survive]

W-O Strategies: Internal Fix-it
1.
2.
3.
4.
5.

Close non-performing stores:[W5/O1-O6]

Companywide training on ethics starting with
senior management[W9:O1-O7
Revisit pricing strategy to be competitive.
Improve availability of items for online
purchasing[W11:O1-O7]
Cooperate/Partner with others such as Amazon
[W11:O1-7]

1.
2.
3.
4.

Explore integration with suppliers[W11:T1]

Close the least profitable
stores[W5,W2:T1,T7,T9]
Review Accessory pricing
strategy(W2:T1,T7,T8]
Merger/Acquisition [Amazon: W2:T1]

References and End Notes

Bustillo, Miguel. Gordon.Kathy. 11-08-11 Best Buy Leaves U.K., Reboots Phone Venture. Wall
Street Journal.
ii
Clifford, Stephanie. 05-14-12. Chairman of Best Buy Resigns After an Internal Audit. New
York Times.
iii
Lee, Thomas. 10-09-12. Schulze Gets Access to Key Execs. StarTribune.
iv
Duryee, Tricia. 10-10-12. Best Buys New E-Commerce Head Aims to Unify Bricks and
Clicks. All Things Digital.
v
Ericson, Jim. 11-05-12. The Cloud (Tax) Platform. Accounting Today
vi
Jopson, Barney. 10-10-12. Best Buys Finance Chief to Step Down. Financial Times.
vii
Bhasin, Kim. 06-25-12. BEST BUY EXEC: Heres the Truth About the Showrooming
Phenomenon. Business Insider.
vii
Wheelan and Hunger. 2012. Strategic Management and Business Policy, 13th Edition. P.215.
Prentice Hall.