Strategic Management Essay Sample

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Strategic Management: Best Buy Co.

Inc.



TABLE OF CONTENTS

EXECUTIVE SUMMARY ..................................................................................................................... 1

INTRODUCTION ................................................................................................................................ 2

COMPANY OVERVIEW ..................................................................... Error! Bookmark not defined.

MANDATE ........................................................................................................................................ 3

EXTERNAL ANALYSIS ...................................................................................................................... 4

INTERNAL ANALYSIS ...................................................................... Error! Bookmark not defined.

STRATEGIC OPTIONS ........................................................................................................................ 8

REFERENCES .................................................................................................................................. 10

APPENDIX ...................................................................................................................................... 13



1

EXECUTIVE SUMMARY

Best Buy is the biggest consumer electronics retail company of USA and has a large

number of stores in and around the United States.

The company is well known for providing differentiated products to its customers and is

a service oriented firm. Its dominant position in the market can be attributed to its customer

centric model through which it provides end-to-end services. In addition to this, the company

makes huge investments in training its people so that they can serve the customers in a better

manner.

In spite of the successes, the competitive environment of Best Buy puts forth a number of

challenges. The intense competition by Wal-Mart and Amazon along with the new entrants is

proving to be a great roadblock in company’s path to success. If the organization fails to respond

properly to such pressures then its operations can be adversely affected.

The company has requisite strengths, which if optimally utilized will result in

uninterrupted success. However, it still requires a strategy for confronting the different

challenges and gets a sustained growth.



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INTRODUCTION

Best Buy Company Inc. is a large American transnational consumer electronics

organization. Though the firm has successfully been in operations from last forty seven years,

still challenges abound as far as sustaining in this competitive world is concerned. This is the

reason; there is a necessity to have an unambiguous and clear strategy to tread on the right path

(Ansoff, 1979).

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Forbes magazine named Best Buy as the “Company of the Year” in 2004. In addition to

this, the firm received lot many other laurels and awards. After competitor Circuit City went

bankrupt in the year 2009, financial analysts forecasted that Best Buy would follow the lead

because internet shopping was becoming more dominant. However, post a strong Christmas sales



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in 2012, the organization was provided brighter prospects. It recorded revenue of US$49.183bn

and a net income of US$ 481 million in the year 2012 (Dye & Sibony, 2007).

MANDATE

Mission/Main Purpose

Though the company has not formally labeled a mission statement, the corporate website

of the company declares the following to its employees and investors:

“Our formula is plain: we are a growth firm focused on resolving the unfulfilled demands of our

consumers – and we depend on our staff members to work out this puzzle” (Eisenhardt, 1989).

The main purpose relates to making technology deliver to the customers on its promises. Best

Buy puts it this way, “To make life enjoyable and simple” as it helps its consumers realize the

advantages of technological and technology changes so that they can improve their lives in a

number of ways through connectivity (Best Buy Co., Inc. History, 2013).

Vision/Major Goals

Being a public company, the topmost objective of the company is to have sustained

earnings and growth. It aims to provide a broad consumer base with a steady shopping

experience whilst providing a range of electronic products at an affordable price (Best Buy Co.,

Inc. History, 2013). The main vision of the company is to increase sales, cash flows and net

profits by capitalizing on their brand image as well as to expand the store base across the North

and South American continent. In addition to this, Best Buy continuously aims at maintaining

plus augmenting the efficacy of its operations to get a competitive edge over its rival firms

(Bryson, Crosby & Bryson, 2009). The organization wants not only to have broad product

offerings but also immensely trained employees having extensive knowledge of the product.

Core Values and Guiding Principles

The management of the company lays down certain guiding principles, which maintain

its objectivity, honesty, reputation and integrity. For instance, the company requires all its

consumers to go out of their normal way to help buyers understand the most optimal uses of their



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products. All staff members are required to recognize that every consumer is unique. This Code

is applicable for its entire workforce (Hisey, 2002).


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EXTERNAL ANALYSIS

Competitive Forces

On the basis of the Porter’s Five Forces model, the below mentioned competitive forces

are at present confronting the Best Buy (Appendix) (Hisey, 2002).

Internal rivalry is one of the most prominent forces of the Porter’s Five Forces and this is

extremely high in the consumer electronics retail segment. There are a number of privately held

retail companies serving definite markets (Bartlett & Ghoshal, 1998). Having a market

capitalization of around $16billion, Best Buy is a leading player of this sector. However,

competition comes from organizations outside this sector. Brick and mortar companies like Wal-



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Mart, GameStop Corp. and RadioShack Corp. occupy a substantial portion of the consumer

electronics market. The intensity of rivalry is high mainly because there is more or less no

switching cost if the customer chooses to shop somewhere else. In addition to this, the products

are almost homogenous and not differentiated (Hunger and Wheelen, 2006). Consequently, firms

compete on grounds of non-tangibles like goodwill and customer service and on prices. Wal-

Mart is the biggest retailer of the world in terms of revenue. At the same time, GameStop has

around 6,207 locations as compared to the 1,023 locations of Best Buy (Jeff, 2008). People keep

a preference for RadioShack in terms of video and audio components; yet opt for Best Buy due

to their big box purchases.

Secondly, there is one more risk that can jeopardize the growth of Best Buy and this is

the vanishing entry barriers and the surfacing of new competition. The roadblocks for entering

consumer electronics sector have been diminished due to the growth of internet and

globalization.


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The final factor impacting the competitiveness of Best Buy is the bargaining power of

buyers. However, this is tremendously low because the purchase volume is less and also buyers

are not capable of integrating backwards, as it is not practicable for everyone to develop their

own electronic products and build up their retail shops (Voskoboynik, 1994). The suppliers

present moderate threat in the sense that there are a limited number of suppliers such as

Samsung, Sony, LG and Panasonic and the company has to rely on them. However, at the same

time these suppliers also have to rely on the retail stores to get shelf space in the outlets.

Macro Environmental Analysis

On the basis of Best Buy’s SWOT analysis, the macro-environmental conditions

mentioned beneath can affect its operations.

Best Buy is currently producing differentiated products and is pinning all its hope on its

differentiation strategy instead of low price. However, electronic products are seen as luxury and

not as necessity. The recent economic downturn had a great impact on the disposable incomes of

the people (Chakravarthy & Henderson, 2007). At times of recession, people have less to spend

and they would rather do it on the necessary items rather than wasting money on luxury items. In

addition to this, there are several regulations imposed by governmental agencies that inhibit the

operations of the company. For instance, the Federal Reserve had put in force new legislations,

which could restrict organizations from providing deferred interest financing to their consumers

(Dess & Miller, 1993).

Moreover, the present economic circumstances along with technological advancements

and intense rivalry have placed a huge pricing pressure on the company. In addition to this, the

fact that the Best Buy competes on product offerings and not on price structure aggravates the

situation. Furthermore, with the improvement in technology, both the prices and product life

cycle decrease (Juarez, 2012). As a consequence of this, profit margins decrease while the cost of

training increases as the employees are compelled to learn new things with a greater frequency.

The operations of the company are subject to a number of rules and regulations pertaining

to importing the merchandise and selling it. These laws relate to product quality, safety, trade

policies and labor. Best Buy has to comply with it in order to maintain uninterrupted operations.



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8

Weaknesses

In spite of the main competencies of Best Buy, there are certain inherent weaknesses,

which can prove to be a big hindrance for the company in coming years. Firstly, though the

organization has transnational operations in Canada, Europe and China, still it derives its major

revenues from the US market. Almost 80% of the total revenues of the company are obtained

from US market (Raimo and et.al., 2009).

Moreover, Best Buy depends heavily on the sales of consumer electronic products.

Hence, such a huge concentration of market in the United States can prove to be a big

disadvantage in the long run. This can greatly impact the revenues of the firm as well as its

expansion opportunities.

Secondly, the firm largely depends on a limited number of suppliers to obtain its

merchandise. If any of the major suppliers fails to supply the goods or if any sort of loss and

disruption takes place then the organization will not be able to meet the needs of its consumers

(Raimo and et.al., 2009).

Thirdly, the former CEOs of the company were highly successful in devising the

appropriate strategies. However, with one of them no longer working with the company, and a

new CEO stepping in his place with all the newfound responsibilities, great deal of pressure is

there. This is mainly so in times of the economic downturn. There is a need to revamp the store

set ups and products for serving the consumers in recognizing their connectivity requirements.

This is a highly daunting job for an experienced person, let alone a new individual who has never

been on this position (Moylan, 2011).

STRATEGIC OPTIONS

Short term solution

Increase service category’s contribution to revenue mix:

Best buy deals in consumer goods and with the downfall in the disposable income of the

consumers, the company will experience downfall in its sales. Further, there are possibilities that

its sales growth may tend to decline. The company generates 40% of its revenue from the sales



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of consumer electronic goods. Such high reliance on a single product line is not good for the

organization and it must look around for strengthening its other product lines also.


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REFERENCES

Books, Journals and Articles

Ansoff, H. I., 1979. Strategic management. MacMillan.

Bartlett, C. A. and Ghoshal, S., 1998. Managing across borders : the transnational solution. 2nd

ed. Harvard Business School Press.

Bowman, E., and Helfat, C., 2001. Does corporate strategy matter? Strategic Management

Journal. 22(1).p. 1-1.

Bryson, J. M., Crosby, B. C., and Bryson, J. K., 2009. Understanding strategic planning and the

formulation and implementation of strategic plans as a way of knowing: The

contributions of actor-network theory. International Public Management Journal. 12(2).

Pp. 172.

Chakravarthy, B., and Henderson, J., 2007. From a hierarchy to a heterarchy of strategies:

Adapting to a changing context. Management Decision. 45(3). Pp.642-652

Dess, G.G. and Miller, A., 1993. Strategic management. Mc Grow-Hill book Co.

Dye, R., & Sibony, O., 2007. How to improve strategic planning. The McKinsey Quarterly (3).

Pp.41-49.

Eisenhardt, K. M., 1989. Building theories from case study research. The Academy of

Management Review. 14(4). Pp. 532-550.

Floyd, S. W., and Lane, P. J., 2000. Strategizing throughout the organization: Management role

conflict in strategic renewal. The Academy of Management Review. 25(1).pp. 154

Fred, R. D., 2011. Strategic management: Concepts and case.13th

ed. Pearson Education, Inc

Gibbert, M., Ruigrok, W., & Wicki, B., 2008. What passes as a rigorous case study? Strategic

Management Journal. 29(13). P. 1465.

Hisey, P., 2002. Facing a Rapidly Changing Competitive Landscape. Retail Merchandiser. pp.

24.

Hunger, D.J and Wheelen T.L, 2006. Concepts in Strategic Management and Business

Policy. 10th

ed. Pearson Education. Inc

Jeff, C., 2008. Strategic Management. SAGE Publishing.

Masters, G., 2003. Best Buy: On Top. Now What?. Retail Merchandiser. pp. 15.

Ramstad, E., 2000. Best Buy Makes Two Acquisition Pacts. Wall Street Journal. p. 88.



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Voskoboynik, H., 1994. Best Buy: A Best Buy Indeed. Financial World. p. 12.


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Online articles

Best Buy Co., Inc. History. 2013. [Online]. Available through:

<http://www.fundinguniverse.com/company-histories/best-buy-co-inc-history/>.

[Accessed on 30th

August 2013].

Campbell, S., 2008. Best Buy Begins Sales of Apple’s 3G iPhone. [Online]. Available through:

<http://www.crn.com/news/channel-programs/210600251/best-buy-begins-sales-of-

apples-3g-iphone.htm>. [Accessed on 28 August 2013].

Juarez, A. C. 2012. The Forces that Make and Break Success. [Online] Available through:

<http://www.rethinkingcomplexity.com/posts/03-21-12/forces-make-and-break-

success> [Accessed on 30th

Aug., 2013].

Moylan, M., 2011. Best Buy’s strategy to keep customers connected. [Online]. Available

through: < http://minnesota.publicradio.org/display/web/2011/11/07/best-buy-uk-stores-

mobile-venture>. [Accessed on 29 August 2013].

Porter, M.E. 2008. The Five Competitive Forces That Shape Strategy. [Online] Available

through: <http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/1>

[Accessed on 30th

Aug., 2013].

Raimo, R. and et.al., 2009. [pdf]. An in-depth analysis of Best Buy. Available through:

<http://www.siena.edu/uploadedfiles/home/academics/schools_and_departments/school

_of_business/raimo%20best_buy_report_formatted2[1].pdf>. [Accessed on 29 August

2013].

Reisinger, D., 2011. Best Buy revenue, earnings slip in 4th quarter. [Online]. Available through:

<http://news.cnet.com/8301-13506_3-20046752-17.html?tag=mncol;txt>. [Accessed on

30th

August 2013].



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APPENDIX

Porter’s Five Forces Model

Extent of

Competitive

Pressures

Industry Rivalry (High)

Homogenous Products

Brick & Mortar

Companies like Wal-Mart

Low switching cost of

customers

Threat of New Entrants

(High)

No entry barriers due to

internet and globalization

Capital requirement has

gone down

Low product differences

Buyer’s Bargaining Power

(Low)

No switching cost

Incapable of doing

backward integration

Low purchase volume

Electronic products are

not a necessity but a

luxury

Threat of Substitute

Products (Low)

High emphasis on

electronic products and

latest technology.

Only substitutes are

magazines, books and

other non-electrical

hobbies of people

Bargaining Power of

Suppliers (Moderate)

Limited number of

suppliers.

Reliance of suppliers on

retailers



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Strategic Management Essay Sample