I have to admit that while I love gadgets and electronics, I don’t actually buy things very often. I do my bit for the mythical “trickle down” economy in other ways, though, so don’t worry that I’m not helping keep those greenbacks in circulation.
Every few months I go into the local Circuit City just to walk around, talk with the salespeople about what’s hot, and generally be wowed by the rate of technological advance in this hot sector. But here’s a funny thing I’ve noticed is happening at the store…
When I first went into a Circuit City store years ago, I was impressed. It was like going to the Consumer Electronics Show, but with price tags! Cool! Over the last few years, though, the company visibly branched out into newer and less “consumer electronics” goods, with dishwashers, refrigerators, and similar stuff that I look for elsewhere when I’m actually shopping for appliances.
According to an article in Business Week, I’m not alone in noticing the loss of focus that Circuit City‘s gone through: revenue has dropped and Best Buy is now ahead of Circuit City in per-store sales.
Lots of companies go through similar problems as they mature, actually, because the other end of this continuum is “diversity”, a worthy and sensible goal for a larger, established company. This naturally creates an internal struggle between focus and diversity: which do you pick? More importantly, which does your Board pick?
Now, suppose I tell you that Circuit City‘s profit came purely from the sale of extended warranties at its stores (an item that’s almost pure profit, I have an article on extended warranties I’ve been working on for a while. It’ll show up here eventually). If you factor out their warranty sales, Circuit City lost money in the last fiscal year. December 2004 sales were down from the previous year, too, while other major electronics retailers generally had an uptick in their per-store sales.
The company is going through a tough time. Fortunately, they’re starting to understand the importance of the componentization trend famously espoused by IBM CEO Sam Palmisano. What’s amazing is that it’s such a struggle for this otherwise savvy firm to understand the implications of reinventing its business as a series of plug-and-play components, any of which can be outsourced.
It’s a tremendously powerful concept and business architecture, far beyond “process reengineering” or any of the other jargony attempts to improve process flow or tighten a value chain. But let’s stick with Circuit City. Not sure that what I’m saying is accurate? The BusinessWeek article reports that the internal Circuit City point of sale system, called Magellan, has been under development since 1999, has only been deployed in 17% of their stores to date and only has 30% of the features spec’d in the design documents. A miserable IT story, no question.
Fortunately, as I said, Circuit City is starting to get it. They’ve jettisoned their credit card operation, they’ve spun off CarMax (what did a consumer electronics retailer have to do with an online used car store anyway?) and they’ve finally seen the light of componentization and are dumping Magellan in favor of an off-the-shelf point of sale component solution that they’ll have deployed throughout the corporation within 12 months.
Michael Jones, Circuit City’s Chief Information Officer, states: “We are building our model around the technology, as opposed to the technology having to fit the model we have.”
It’s about time, Michael.
Focus. It’s one of the most important challenges for a company, whether it’s two people toiling in a basement or a public company.
The age of proprietary interfaces and internal processes is dead. The coffin nails were hammered in by Amazon, eBay, HP, UPS, FedEx, Ford, and even Eli Lilly, companies that have fully componentized businesses, and then have been able to leverage this evolution and seamlessly outsource non-mission-critical business services. Do you think Amazon ships books? HP fixes its printers? Gibson guitar tunes its instruments prior to shipping them to their customers? All of these are outsourced.
Circuit City, welcome to the twenty-first century. Your growth awaits you, as does a brave new world of consumer electronics and technology.