Leadership Strategies

Why Best Buy has always had the best strategy

Two new roads in search of continuous renewal

I 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.

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 VOL. 24 NO. 4 2008, pp. 21-23, Q Emerald Group Publishing Limited, ISSN 0258-0543 j STRATEGIC DIRECTION j PAGE 21

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

‘‘ 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? ’’

PAGE 22jSTRATEGIC DIRECTIONj VOL. 24 NO. 4 2008

water finding its way across a path of least resistance, the momentum of the business must

always be maintained.

Comment

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.

Keywords:

Corporate strategy,

Organizational development,

Competitive advantage

Reference

Chakravarthy, B. and Lorange, P. (2007), ‘‘Continuous renewal, and how Best Buy did it’’, Strategy

& Leadership, Vol. 35 No. 6, pp. 4-11.

‘‘ 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. ’’

VOL. 24 NO. 4 2008 jSTRATEGIC DIRECTIONj PAGE 23

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