Introduction
Small and large businesses alike have fought to keep their heads above water in the wake of the recession’s devastation on a wide range of industries across the United States. Since the recession began, many retailers have struggled to keep their client bases because customers have cut back on spending on everything from clothing to gadgets. Circuit City, for example, was unable to recover from this economic crisis because of a variety of crucial factors, including massive losses. There are several key reasons why Circuit City was unable to overcome its challenges and was forced to close its doors, all of which must be identified. We’ll talk about these failings in greater depth in the next section, with a focus on management’s role in the long-term destruction of the company. It’s been a hard few years for many sectors across the United States, as firms of all sizes have had to deal with financial losses and other issues in the wake of the economic crisis. Since the economic crisis, many retailers have been struggling to keep their client bases, as customers have slashed their spending on a wide range of items, including electronic devices. Circuit City, for example, was unable to recover from this economic crisis because of a variety of crucial factors, including massive losses. In order to understand why Circuit City failed and finally shut down, it’s critical to pinpoint the root causes of the company’s major missteps. We’ll talk about these failings in greater depth in the next section, with a focus on management’s role in the long-term destruction of the company.
Four Functions of Management
Circuit City’s most egregious failings may be traced back to the company’s top management team rather than to the general decline of the American economy at the time (Reisinger, 2008). Contrary to popular belief, there is plenty capacity for more than one major big-box electronics shop, despite evidence to the contrary. Instead of trying to mimic Best Buy’s business model, Circuit City executives could have developed their own, and we wouldn’t be asking ourselves, “Which retailer will have the better Christmas shopping season?” (Reisinger, 2008). Although Circuit City’s top management team did not make many good moves that would have improved the firm’s business model, the company instead faced significant losses that were impossible to recover (Reisinger, 2008). These efforts left executives with few options except to file for Chapter 11 bankruptcy, despite the numerous potentials for the firm to turn itself around even in an extraordinarily challenging retail industry (Reisinger, 2008).
i) Leading
Circuit City’s massive failures were largely attributed to its management team, which appeared to have no idea how to overcome adversity and financial difficulties and make sense of the realities of the economic situation that they faced, as a result of these challenges and the impact they had on the retail electronics industry. As a result, the business went under and was never able to recover, resulting in its collapse and public humiliation. A failure of this magnitude is still one of the most significant bankruptcies in recent history, paving the door for new issues about how managers function in major organizations and make their own judgments from inside. Finally, the organization had these experiences: As a result of poor management, the company’s annual foot traffic dropped by double digits, and its downward spiral was exacerbated by the short-sighted decision to fire several thousand of its most experienced and highly-paid hourly workers and replace them with inexperienced substitutes,” according to reports. As a result, suppliers lost faith in Circuit City’s dependability and ceased to supply merchandise. For Circuit City, which relies mostly on the credit cards of its customers, this has been an especially devastating blow because the company relies so heavily on credit cards to make its sales (U.S. Government Printing Office, 2009). Accordingly, the company’s demise is not surprising considering its economic situation and lack of development in an already challenging environment.
ii) Planning
When reviewing Circuit City’s past successes and failures, it was determined that the company and its executives were unable to accept or adapt to changes in its business practices and model, which were essential to its continued success in a challenging retail market, and with heavy competition from Best Buy (Hamilton, 2008). A catastrophic error in the extremely competitive and rapidly expanding retail-electronics market, according to Hamilton (2008), was made by Circuit City. At first Circuit City’s issues stemmed from its lack of great real estate, which made it more difficult for customers to shop at other businesses, such as Wal-Mart. As a result, Circuit City no longer offers home appliances for sale. Despite this, it hasn’t made the necessary inroads into the game market. For one thing, it didn’t participate in Apple’s massive in-store marketing.” Because of these conditions and the fact that competitors like Best Buy and Walmart and Target were selling identical items at lower rates, it was decided that Circuit City couldn’t compete successfully (Hamilton, 2008). The company’s decision to quit selling big appliances like refrigerators, stoves, and dishwashers also resulted in customers looking elsewhere for these items, as well as their technological needs like televisions, DVD players, and home theatre systems (Hamilton, 2008). However, Best Buy was able to take advantage of these opportunities and increase its sales growth in these product categories (Hamilton, 2008). Due to a lack of big-ticket items, Circuit City was unable to maintain its sales of its glory years, which was a huge setback for the company and its ability to maintain a promising level of success (Hamilton, 2008). This meant that it was no longer possible for Circuit City to compete with Best Buy on an equal playing field (Hamilton, 2008). Thus, despite its executives’ recognition of the organization’s potential, it did not follow through and accept change, which ultimately led to its collapse (Hamilton, 2008).
iii) Controlling
Circuit City was unable to control and compete in the electronics retail market in the 2000s due to a multitude of factors. Chapter 11 Bankruptcy proceedings revealed that the company’s management structure was a substantial obstacle, even though these same executives were likely to assign the primary culpability elsewhere (Meadows, 2009). To thrive in a highly competitive retail market, Circuit City’s demise highlighted those enterprises need to be a step above the rest in order to survive in the aftermath of terrible economic conditions and strong competition. Even when filing for Chapter 11 bankruptcy, it is usually expected that a firm like Circuit City will fail if it does not have a strong and stable management structure. As a result of testimony before the United States Congress, these ideas were clearly demonstrated: When Circuit City went out of business, it was due to three primary factors: poor financial results, a lack of realistic credit terms from trade vendors, and the fact that the US financial markets were mired in such profound and unprecedented turmoil that financing–both debtor-in-possession and exit financing–was impossible to secure” (U.S Government Printing Office, 2009). As a result of these results, it was concluded that the company could not overcome a sequence of losses that had left them in a perilous fiscal position (U.S. Government Printing Office, 2009). A small but significant market share meant the company could not recover from stinging losses and that the primary difference between this organization and others with a similar fate was that the management structure and team was in place at the time did not possess the skills and talents necessary to achieve their desired fate, and to recognize how to best overcome these challenges, and to make sense of the economy and id (U.S. Government Printing Office, 2009). Other evidence pointed to management’s incapability or lack of expertise in recovering from its losses and accepting responsibility for the changes it attempted. When it comes to dealing with change, it looks as though the organization’s management team just gave up and surrendered rather than pursuing an effective strategy. As a result, it looked like shutting down the business was the best option.
iv) Organizing
Circuit City’s downfall can be attributed to a lack of managerial concentration and attention on the right sales model. Observations made prior to the company’s decision to close its doors: “If you want to handicap a management team’s ability to successfully turn a company around, look at their candour with investors, if they are clued in to their problems, and how they react when things aren’t going well/proceeding according to plan. When I look at Circuit City, I’m more alarmed by the executives’ ignorance and lack of transparency than I am by the company’s financial outcomes. Rather than being a slew of spin-doctors who have done nothing except derail the firm for the previous two years, the management team’s failure to turn around Q1 would not be as alarming (Seekingalpha.com, 2008). The corporation failed to acknowledge its own level of failure in these conditions, and as a result, was unable to rectify its mistakes and recover from its losses (Seekingalpha.com, 2008). As a result, the company was never able to fully recover and develop to its previous levels of prosperity (Seekingalpha.com, 2008). In the aftermath of its most powerful rivals, notably Best Buy, the corporation was unable to maintain a challenge as a result (Seekingalpha.com, 2008). It was therefore impossible for them to compete, and they had no choice but shut down and limit their losses (Seekingalpha.com, 2008).
Corporate Social Responsibility
Circuit city demonstrated poor CSR due to the management team’s poor decision-making, including the following: After removing commissions and laying off 3,900 salespeople in 2003, Circuit City laid off its 3,400 highest-paid salesmen because management bean-counters believed they were costing the business too much. ‘ Due to the fact that they were the highest-earning and most experienced salesmen, the latter layoff was particularly devastating As a result of losing its best salespeople, Circuit City’s customer service was abysmal and sales consequently decreased” (Meadows, 2009). Customers were more likely to go elsewhere for electronics if they felt that Circuit City’s customer service and sales staff were under-supported and under-appreciated, since these competitors had a wide range of products that were tough for Circuit City to compete with (Meadows, 2009). Many clients were put off by the lack of attention paid to customer service and sales at this time: Allen pointed out that the televisions with the poor outcomes were “intense sales” that need better-trained staff. ‘It’s a big-ticket buy for someone. They’d also be annoyed if they thought they were getting the wrong counsel or were being misled by someone who didn’t know. You can bet they’ll find a new place to conduct business” (Meadows, 2009). A lack of customer service scuppered the company’s efforts to become a customer-focused firm, and customers shifted their purchases elsewhere (Meadows, 2009). Because of these shortcomings, it was concluded that the firm could not succeed as a large retailer, and management appeared unwilling to make the necessary modifications to make these changes possible (Meadows, 2009). As a result of this, the company was forced to close its doors because of the enormous losses it had sustained (Meadows, 2009).
Ethical Breaches
Circuit City proceeded on a retail expansion binge to appease Wall Street analysts, which resulted in an overabundance of locations in dangerous areas. Indeed, Circuit City was dishonest in its transactions, building too many outlets that could not be effectively managed, and this resulted in bankruptcy. Circuit City spent approximately $1 billion on stock buybacks throughout that period. They were trying to prop up their stock price in the face of sluggish revenue growth. Financial crisis forced them to spend virtually all of their savings. In the wake of the credit crisis, suppliers tightened their credit conditions and demanded upfront cash payment for their items. It’s understandable that suppliers were reluctant to furnish Circuit City since they were afraid the firm would shut down at any time. The old inventory couldn’t be onloaded quickly enough to pay off the current debt commitments, thus Circuit City couldn’t acquire new items or get the old inventory into circulation. When Circuit City shut down 150 locations in November 2008, they lay off 17% of its workers. Afterward, it filed for bankruptcy. To prevent going out of business, the company was unable to find a buyer. Vendors were correct to stop supplying the firm since it still owed Sony and Hewlett-Packard more than $100 million. Because of a succession of poor decisions and dishonesty, I believe that Circuit City was a victim.
Steps of Rational Decision Making
Assuming that managers would make logical judgments that are in their organization’s best interest, the rational model of decision making, often known as the classical model, describes how managers should make decisions. Rational decision-making often goes through four stages. These are the same stages that are used in the traditional problem-solving approach. Many decisions may be seen as a chance to bridge the gap between the current condition and the intended one. According to Kinicki et al. (2011), the rational decision-making process consists of four steps:
- Determine what the issue or opportunity is.
- Think beyond the box and come up with new ideas.
- Evaluate your options and choose the best one.
- Evaluate and implement the solution that you’ve chosen.
Managers face a wide range of challenges, including customer complaints, supplier failures, staff turnover, sales shortages and competitors’ innovations. Low employee enthusiasm and poor quality are also likely to impede target attainment. Even yet, you’ll often come into instances where you may go above and beyond your current goals. The foresighted manager, on the other hand, is able to see past the daily barrage of issues and grab the opportunity to perform above and beyond expectations. Your organization can take advantage of a sudden departure of a competitor’s top sales representative by hiring that individual and using him or her to better advertise your product in that particular sales region. As a result, whether you’re faced with a problem or an opportunity, the option you’re faced with is whether or not to make improvements. When it comes to determining the root problem, it’s all about diagnosis.
An employer’s most valuable asset is a workforce full of creative thinkers. According to Fortune magazine writer Alan Farnham, “Creativity precedes innovation, which is its physical representation,” he argues. All intellectual property may be traced back to it. Following the identification of the problem or opportunity and its causes, you need to come up with alternatives.
At this point, you should not only consider the price and quality of each possibility, but also the answers to the following questions: The question is whether or not it is morally acceptable. Do not even bother looking at it if it is not.) Is it a possibility? Not if the time is short, prices are expensive, the technology is unavailable or clients are receptive. Is it effective in the long run? Maybe reconsider if the selection is only “good enough,” but isn’t the best option in the long term.
Organizational Culture
Because of the rapid pace and high stakes of today’s global economy, culture has become an intangible construct that individuals use to justify and ensure their own survival. One of the most important variables in an organization’s ability to adapt to its external environment is its culture. Culture trumps strategy every time. Investing in an organizational culture that encourages and fosters creativity, innovation, and high performance is essential for business leaders. Gilbert’s management theorem was shown in practice in Campbell’s (2014) analysis of Circuit City’s catastrophe. Rather than succumbing to growing competition due to a lack of qualified or motivated employees, Circuit City, once the leading retailer of home electronics, failed due to poor management decisions that resulted in layoffs of the most capable but also more expensive employees and a shift from incentive-based compensation to hourly compensation. Managers made these adjustments to foster incompetence and eliminate any potential of competition (Campbell, 2014). A study by Gilbert (2007) showed the usefulness of knowledge for competence and the significance of using incentives to motivate achievement rather than performance.
In today’s highly competitive business market, executives are always looking for ways to improve their company’s performance. Based on the BEM and existing performance management approaches, Fusch and Gillespie (2012) created a Performance Improvement Model (PIM). The 6-step cycle developed by Fusch and Gillespie is a thorough and practical guide to enhancing performance and sustaining the process of development throughout time.
Human Resources
Managers at Circuit City are expected to do more than just oversee their departments. They also handle the logistics and liaise with stakeholders in order to keep things moving smoothly. One way to better grasp what it’s like to work as a manager is to become familiar with the many tasks that managers are responsible for. In order to realize the company’s overarching vision, managers set priorities, allocate resources, and monitor their performance. Managers may drive their staff to succeed by setting clear goals and providing mentorship for growth by explicitly defining them.
Resource allocator-There are many managers that are responsible for allocating finances and assets within their office or division to ensure that they are being used to their fullest potential. They may devise a strategy for completing projects on schedule and on budget. If necessary, supervisors can delegate tasks to workers and keep tabs on their progress, as well as assess whether or not the work load can be handled.
Leader-Providing employees with a long-term objective or vision can be an effective way for a manager to lead their team. Employees turn on managers for guidance, decision-making, and motivation in the short and long term.
Spokesperson-A manager can serve as a spokesperson for the company. Managers inform the general public about the organization’s long-term aims through spreading good messaging about the firm. As part of their job, managers may assist the public relations staff in promoting the firm, attending events, or delivering speeches.
Trainor-There are several ways to use a manager as a trainer. Facilitating on-site training and development opportunities or leading training sessions might be part of this process. They may also supervise employees when they gain new skills or when new technologies are introduced and assist them adapt to the changes in their work environment.
Negotiation-Team and organizational negotiations can be dealt with by negotiator managers. When there is a disagreement or a conflict, they might seek a settlement with or among the parties via negotiating. Managers can collaborate with others to find the best answer to an issue and achieve their goals.
Representative-A manager may serve as the company’s official representative in formal circumstances and meetings, such as board meetings. A client lunch, an employee’s wedding, or a charity fundraising are all examples of places where they may appear.
Mentors-Managers may serve as mentors to their employees, helping them learn new skills and grow as individuals and as a team. They may assist their employees learn new skills and provide them with feedback on how well they are doing. Managers who mentor their employees may be able to lead their teams more effectively while also focusing on the needs of the individuals they are responsible for.
Liaison-An organization’s liaison is a manager who serves as a link between various divisions inside the company and with the outside world. It is possible for managers to network on behalf of the company in order to create relationships inside and outside of the community and industry. The chief executive officer (CEO) might use managers as a conduit to communicate important information to their workforce.
Entrepreneur-Entrepreneurial-managers are frequently the ones that come up with fresh ideas and solutions for their firm or division. Visionary leaders make change in the organization and start new projects by establishing a vision for what they want to see happen. In order to come up with better solutions, managers may be driven by a love for their organization and unafraid to take risks.
Mediator-Employee disputes, consumer complaints, or the loss of a key client can all be resolved and controlled by a manager acting as an impartial mediator. There are times when managers may behave like a judge when it comes to settling issues and keeping small issues from becoming out of hand.
Recommendation
Hiring managers must be able to accurately assess whether job prospects would be a good match in order to avoid costly recruitment blunders. However, it isn’t always as simple as it appears. The interview procedure may appear easy at first glance. Recruitment is a difficult process. However, there are three methods that recruiting managers may utilize to enhance the process and acquire the best possible results for their team.
Be specific about how you want your employees to perform.
Spend time interviewing and selecting the right candidate
Before hiring, allow the candidate to spend time with the team.
Conclusion
Several variables may have contributed to Circuit City’s demise and shop closings, but its weak management structure and decision-making ability were the fundamental causes of the company’s huge demise. After a long period of poor decision-making, the firm was unable to recover from a series of obstacles that were tough for the company to overcome and understand given the current economic climate. As a result of Circuit City’s poor decisions and the elimination of “customer service,” the company’s client base slowly but definitely dwindled. A bankruptcy filing was not a surprise to many, and its managerial structure became the subject of much discussion in corporate circles. Despite this, the enormous layoffs and the management’s apparent lack of commitment to the business are discouraging and continue to pique curiosity in how merchants make sales-related decisions in an economy that is both unstable and difficult to manage. What Circuit City’s mistakes show is how a corporation may effectively shut down operations without giving it a second thought.
References
Campbell, T. A. (2014). What could have been done? Circuit City: A case study of management and employee performance failure. Performance Improvement, 53(4), 16–23. doi:10.1002/pfi.21405
Fusch, G. E., & Gillespie, R. C. (2012). A practical approach to performance interventions and analysis: 50 models for building a high-performance culture. New Jersey, NJ: FT Press.
Gilbert, T. (2007). Human competence: Engineering worthy performance (Tribute ed.). San Francisco, CA: Pfeiffer
Hamilton, A. (2008). Why Circuit City busted, while best buy boomed. Retrieved from http://www.time.com/time/business/article/0,8599,1858079,00.html
Kinicki, A., Williams, B. K., Scott-Ladd, B. D., & Perry, M. (2011). Management: A practical introduction. McGraw-Hill Irwin.
Meadows, C. (2009). Lessons from Circuit City’s bankruptcy. Retrieved from http://www.teleread.com/drm/lessons-from-circuit-citys-bankruptcy/
Reisinger, D. (2008). Circuit City execs killed the company. Retrieved from http://news.cnet.com/circuit-city-execs-killed-the-company/
Seekingalpha.com (2008). Circuit City needs a management overhaul. Retrieved from http://seekingalpha.com/article/82351-circuit-city-needs-a-management-overhaul
U.S. Government Printing Office (2009). Circuit City unplugged: why did Chapter 11 fail to save 34,000 jobs? Retrieved from http://www.gpo.gov/fdsys/pkg/CHRG-111hhrg47924/html/CHRG-111hhrg47924.htm
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