Why Best Buy Has Always Had The Best Strategy Two New Roads

Why Best Buy Has Always Had The Beststrategytwo New Roads In Search O

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/ VOL. 24 NO. 4 2008, pp. 21-23, Q Emerald Group Publishing Limited, ISSN 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: ( – Leveraging competencies to develop a state-wide chain of stores. ( – Became every day, low price cost leader, expanded market reach and became much more operationally efficient through build and leverage. ( – Built a hybrid strategy of low end and top end product offerings while leveraging competencies to expand reach further. ( – New digital products meant a new strategy of building skills to become the retailer of choice to help consumers. ( – A blend of building new skills to keep pace with technological change and acquiring new stores in new territories, along with leveraging retailing skills. ( 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?’’ 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.

Paper For Above instruction

Corporate strategy has continuously evolved over the past few decades, significantly influenced by prominent scholars like Michael Porter, who developed foundational frameworks for understanding competitive advantage and industry structure. However, as business environments became more dynamic, theorists such as Gary Hamel and CK Prahalad introduced the concept of core competencies, emphasizing the importance of leveraging unique organizational strengths to sustain competitive advantage. This approach, combined with strategic tools like the Hamel and Prahalad matrix, provided a basis for firms to analyze their market positioning and competency development. Nonetheless, the rapidly changing landscape necessitated new perspectives that could accommodate continuous renewal and adaptation.

The article "Continuous renewal, and how Best Buy did it" by Bala Chakravarthy and Peter Lorange expands upon these foundational theories by proposing two additional dimensions—leverage and build—to the traditional matrix. These dimensions allow organizations to approach strategic renewal not as a static snapshot but as an evolving process. Leverage involves utilizing existing competencies to enter new markets, while build focuses on creating new capabilities and assets. This fluid model enables firms to transition seamlessly between current and future strategic states, fostering sustainable growth through ongoing adaptation.

Best Buy's strategic evolution exemplifies the practical application of these concepts. Starting from a single store in Minnesota, Best Buy implemented various phases of leverage and build to expand its market reach and deepen its technological capabilities. For example, initially leveraging competencies to establish a state-wide chain, the company then became a low-cost provider, expanding operational efficiencies. Later phases involved building new skills in digital products and digital marketing, which positioned Best Buy as the leading electronics retailer in the United States. The company's ability to dynamically adapt through strategic renewal underscored the importance of viewing organizational change as a continuous process rather than isolated decisions.

The model proposed by Chakravarthy and Lorange underscores the importance of ongoing organizational renewal through a combination of leveraging current strengths and building new capabilities. This approach aligns with the dynamic capabilities framework, which suggests that firms must continuously develop, adapt, and reconfigure internal resources to respond to external changes effectively (Teece, Pisano, & Shuen, 1997). In Best Buy's case, strategic phases were marked by technological innovation, customer segmentation, and expansion into new markets, demonstrating a proactive approach to change management.

Furthermore, the application of this evolving strategy highlights the limitations of static, snapshot-based models like the original Hamel and Prahalad matrix. Instead, organizations should embrace a temporal perspective, acknowledging that strategic decisions are interconnected over time and must be revisited frequently. This perspective encourages continuous monitoring and re-evaluation of competencies, market conditions, and organizational goals—approaches vital for maintaining competitive advantage in fast-changing industries.

From a broader perspective, other firms can learn from Best Buy's example by adopting a strategic mindset focused on ongoing renewal. Companies should foster a culture of innovation and agility, constantly realigning their core competencies with emerging market trends and technological advancements. This aligns with the concept of strategic agility—an organization's ability to sense environmental shifts, seize opportunities, and reconfigure resources rapidly (Sullivan & Harry, 2018). As markets evolve, firms that integrate continuous renewal into their strategic framework are better positioned to sustain growth and avoid stagnation or obsolescence.

Overall, the enhanced matrix model with the "leverage" and "build" dimensions offers a robust framework for understanding strategic renewal. It demonstrates that sustained organizational success depends not only on initial competitive positioning but also on the capacity for ongoing adaptation. Best Buy's case exemplifies this philosophy—employing strategic flexibility to reinvent itself continuously and secure its leadership position within its industry. The lesson for other organizations is clear: strategic planning must be a dynamic, iterative process, responsive to both internal capabilities and external environmental changes.

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