Strategic Audit on Best Buy Inc. Essay
Strategic Audit on Best Buy Inc.
1.1 Current Situation
Best Buy Co., Inc. is an American multinational consumer electronics corporation headquartered in Richfield, Minnesota, a Minneapolis suburb. It operates in the United States, Puerto Rico, Mexico, Canada, and China. The company was founded by Richard M. Schulze and Gary Smoliak in 1966 as an audio specialty store; in 1983, it was renamed and rebranded with more emphasis placed on consumer electronics. Best Buy’s subsidiaries include Cinema Now, Geek Squad, and Magnolia Audio Video, Pacific Sales, and Cow boom. Best Buy operates under the Best Buy, Best Buy Mobile, Geek Squad, Magnolia Audio Video, and Pacific Sales brands in the US; the Best Buy, Geek Squad, Cell Shop, Connect Pro, and Future Shop brands in Canada; Best Buy Mobile and Five Star in China; and Best Buy, Best Buy Express, and Geek Squad in Mexico.
Best Buy sells cellular phones with phones from Verizon Wireless, AT&T Mobility, Sprint PCS, Boost Mobile, and T-Mobile, in regular stores and standalone Best Buy Mobile stores in shopping malls. Best Buy was named “Company of the Year” by Forbes magazine in 2004, “Specialty Retailer of the Decade” by Discount Store News in 2001, ranked in the Top 10 of “America’s Most Generous Corporations” by Forbes in 2005 (based on 2004 giving), and made Fortune magazine’s List of Most Admired Companies in 2006. Hubert Joly serves as Best Buy president and CEO.
In recent years the direct competition in the form of Circuit City has been removed and yet stock prices continue to fall. Why? Bad strategy. Management has looked to restructuring of the big box stores for salvation and the analysts aren’t buying. They’ve seen this approach from Best Buy before and been disappointed. The definition of insanity is doing the same thing over and over and yet expecting different results.
2.1 External Environment
The PESTEL analysis contains the analysis of Political, Economic, Social, Technological, Environmental and Legal environments of a country with reference to a particular object. The PESTEL analysis of Best Buy Co. Inc. is as follows:
The company is engaged in various activities to promote the promotion of candidates and political organizations. In United States, direct corporate contribution to the candidates of any political party and committees is not allowed in some states and at federal level. The companies can make individual contributions on behalf of these candidates and parties. The company complies with all the laws related to the political contributions and strives to contribute to the parties that are interested in the well-being of their industry (Best Buy, 2009)
The company has most of its operations in United States and the economic conditions of the country are not hidden from anyone. The economic slowdown has no doubt affected the business operations of Bust Buy Co. and they are facing consumer related challenges at every point in the market. There have been dramatic and long lasting changes in the behaviors of consumers due to the economic slowdown in the country. They will need time to adjust themselves to the new realities. Due to these economic conditions, in 2008, Best Buy Co. asked its employee’s to separate from the company on voluntary basis (acoustics, 2008).
This strategy allowed the company to settle down in the market to some extent. By the end of fiscal year 2008, its revenue showed remarkable stability and consistency proving the decision of cutting down work force was right (acoustics, 2008).Corporate partnership with CPW has helped the company to perform better in the adverse conditions of the economy and markets. Early this year, the company has noted a growth rate of around 30% (CPW, 2011). Their operating income increased to around 4% of its revenue in the second quarter of fiscal 2011, compared to 2.5% of revenue in the prior-year period.
Best Buy is engaged in effective social and community related initiatives. It has developed Children’s Foundation that aims to support the local communities via its grant making programs. It took an initiative to encourage the teens to speak their selves up. The program called ?@15?has a goal to give power to the teens to improve their relationships and educational status at school, engage in their communities, and skills that can be helpful for them in professional lives (Best Buy Community Relations, 2011). Apart from these initiatives it is actively engaged in various other programs like teach @15 awards, @15 scholarships, @15 community grants and store donations to promote education, community relationship etc. with the help of various national and international NGO’s.
In order to carry out its community related programs it is partnered with various other foundations. These partners includes Admission Possible, AFI Screen Nation?, America Scores, American Red Cross Society, Asoka’s Youth Venture, Boys and Girls Clubs of America, Communities in Schools, Dollars for Schools, DonorsChoose.Org, DoSomething.org, Genesysworks, GoNorth!, GRAMMY Foundation, j. k.livin foundation, KIPP, Mercy Corps, MOUSE, NCLR, National Urban League, NYLC, PACER Center’s Teens against Bullying, Project Girl, RACE- are we so different, Room to Read, Scholarship America, Search Institute and various others (Best Buy Partners, 2011).
The company was regarded as one of those corporations who were involved in unethical deforestation in Canada (Greenpeace, 2007). Since then, Best Buy launched a program called Greener together to increase the energy efficiency in its products and to reduce the level of waste by using recyclable packaging and disposing system. In 2009, Fortune magazine reported that Best Buy started a campaign called Best Buy wants your electronic junk. It started offering free recycling of gadgets large and small, more than twenty million pounds of junk items that were recycled by the company. This helped to enhance the green reputation of the company and was used as a strategic way to get customers into stores (Marc, 2009).
In 2005, one lawsuit was filed against the company in the US district court in California. The company was alleged for discriminating against the women employees specially African-American and Latino employees. It was charged to deny the good sales position and promotions due to their ethnicity but the company denied this fact. The company agreed to change its corporate and personal policies as well as procedures to improve its employee relationships. The company is keen to enhance equal employment opportunities at its stores nationwide (Associated Press, 2011). Moreover, it tries to comply with all the rules, regulations and laws of the federal, state and local governments of the regions it operates in.
2.2 Porter’s five forces analysis
Rivalry among established competitions
The extent of rivalry among the already established competitors and the Best Buy Co. Inc. is very high in the retail business. Its main competitors are Amazon, Apple Inc. and Wal-Mart store. All of these companies have given cut throat competition in the market. The success of a company depends on the products it offers in terms of its quality and the economic pricings. The more quality at economic pricing structure are well appreciated by the customers. Wal-Mart has an effective strategy of offering goods at very low prices. This strategy is killing the profit margin of other competitors in the markets.
Bargaining power of suppliers
The bargaining power of suppliers is medium to high in the case of retail business of technology based products. Best Buy obtains its merchandize from limited number of suppliers which makes it vulnerable to the moods and requirements of those suppliers. The suppliers have every bit of power to obtain their desired profits from Best Buy Inc. If Best Buy engages in the wide range of supplier networking system then it would no more remain a subject to supplier’s bargaining power.
The bargaining power of buyers
The bargaining power of buyers is high in the case of Best Buy. The customer needs and wants are derived by the quality of products and the prices offered and these needs and wants are subject to change overtime. The Best Buy is using customer centric model which has weaken its ability to deal with the customers. This model has given subsequent amount of power to the buyers and empowered them to demand products at their preferred prices. If not complied, the customers tend to switch to the other retailer. Complying with the demands of the customers can increase the cost of doing business to Best Buy (Gulati, 2010).
The threat of substitute products or services
Today, people seek entertainment and electronic gadgets essential to carry out their everyday life works and business. Almost everyone has at least one television, computer, mobile phone etc. these things are not likely to be replaced with any other gadgets or related products. If they want to replace it, they will replace with the up to date technology. So the likelihood of people to replace the products offered by Best Buy with the substitute products is very low.
The threat of the entry of new competitors
The industry imposes certain barriers to the entry of the new companies in the markets. This means that the level of threat of new entrants is relatively low in the industry. There are varying reasons to the low rate of entry. Among them is the entry barriers imposed by the Industry. The new entrants will have to comply with the governmental regulations in order to make their entry in the markets. Then the existing players are protected by the number of barriers which makes it difficult for the new entrants to give hard time to them. Among them are: entry restrictions, tariff rates, high capital requirement, distribution channels etc. These barriers limit them to compete against the existing market players (Kwok, Dornbach-Bender and Lange, 2009).
3.1 Internal Environment
3.2 Corporate Culture
Best Buy’s corporate team consists of over 900 passionate professionals dedicated to driving and supporting company. The pace is fast and challenging, but they make time for fun too. Monthly interactive company forums, family fun days and BBQs are just some of the ways they get together. Whatever your discipline, the experience, creativity and enthusiasm you bring can play a vital role in the department of your choice and help Best Buy continue its remarkable growth. At Best Buy they encourage people to be themselves, do their thing and grow to their full potential. They do everything to support each-other along the way.
Having fun while being the best.
Learning from challenge and change.
Showing respect, humility and integrity.
Unleashing the power of our people.
Organizational Activity Analysis
3.4 Current Financial Overview
Believing that past performance is only a base to future success and not a guarantee due to changing market conditions, we need to analyze Best Buy’s current financial strategy and strength by looking at some of its key indicators over the past 5 years. Specifically we will look at historic and current Revenue, Net Income, Net Profit Margins, along with the number of Employees on staff: