Learning from front liners

I was new not only to Best Buy but to retail in general, and I had a lot to learn. I also knew that listening to front liners was the best way to do that. Wearing my khaki pants and the iconic Best Buy Blue Shirt with a “CEO in Training” tag, I spent my first day meeting the staff, listening, asking questions, walking up and down the store, visiting every department, observing sales associates interact with customers, and asking more questions. After my shift, I had dinner with the store management team at a local pizzeria. We spent the evening chatting and getting to know each other while also discussing what was working well for them and what was not. These were people coming face to face with customers every day, having to do their job with whatever tools had been given to them.

They knew a lot about what was really going on at Best Buy. A lot! During that dinner, for example, one of the sales associates pointed out that the bestbuy.com website’s search engine was a problem. Customers could not find what they were looking for. She demonstrated by typing “Cinderella” in the search bar. The search engine spat out a list of Nikon cameras. I could not believe it.

Over dessert, I also found out that the employees were unhappy that employee discounts had been reduced several months earlier. Part of the reason many Blue Shirts worked at Best Buy was because they loved electronics, and the decision to push back a perk that they dearly valued bit hard. Even more galling, they said, was the board’s decision at about the same time to introduce “stay bonuses” for certain senior executives to entice them to keep their jobs as the company was going through turmoil.

The next day, I had lunch with Matt Noska, the store’s general manager. Just as with my mystery shopper experience, I had noticed earlier in the day that CDs, DVDs, and video games took up a lot of floor space. I grabbed a napkin and asked Matt if he would draw a rough picture of the store’s floor plan. His sketch showed that about a fifth of the floor space was dedicated to physical media, which was fast losing ground to online streaming. Mobile phones, on the other hand, occupied only a tiny piece of the store space (4 percent), even though demand for them was booming. Small appliances such as juicers, blenders, and coffee machines were also popular and profitable—a market worth some $16 billion in the United States, and growing.¹ Unfortunately, they were virtually invisible in St. Cloud. I found one lonely blender on a shelf hidden at the back of the store. All this was clearly a great opportunity.

Back in the store, I observed customers. I saw that they would talk to Blue Shirts for a while and sometimes leave without buying anything. They were showrooming—getting advice and sampling products but buying online where, they thought, they would get cheaper prices. This left sales associates dispirited.

I was curious to understand why, in the Blue Shirts’ opinions, customers should turn to Best Buy. What did we offer that other retailers did not? Associates had developed their own views as best they could, but they were neither consistent nor particularly compelling. This made me realize that the company had not given the Blue Shirts clear answers to this critical question—which meant that customers could not possibly know why they should turn to Best Buy either.

During a meeting in his office near the end of my time there, Matt Noska told me that Best Buy headquarters had piled on 30 or 40 indicators to measure the store’s performance, from store card applications and extended warranties to how many accessories were being sold by product category. Every central department was pushing its own metrics and saying theirs were top priority, making it impossible for front liners and managers to know what they should focus on. Never mind that these metrics were not particularly useful or centered on customers. Store staff were disconcerted, confused, and overwhelmed. I could see how it was hurting the brand in the eyes of customers.

What I learned in these first few days, listening to store employees and observing what was going on in the store, I could never have fathomed poring over spreadsheets or sitting in meeting rooms with other executives in HQ. After a few days listening to my new colleagues and observing their work, I had gotten so many ideas about what we could do—and do quickly—to start fixing the business. When a business is in trouble, listening to the individuals on the front line is the best place to quickly identify what “crazy, goofy, or stupid” things, as I later told store managers, have been getting in the way. Best Buy’s turnaround started with Blue Shirts in St. Cloud.

Choosing the right people at the top

Starting with people also means making sure you have the right executive team. If a business is doing well, credit goes to front liners. If it is struggling, top management has to be held accountable; like Mao Zedong, I believe that fish rots from the head.

Best Buy was struggling, so top management should be held accountable. But that did not mean I just started swapping out team members. I told the executive team on day one that everyone started with an “A.” It was up to them to maintain their “A.”

Sometimes the process is self-selecting. It did not take long to recognize which members of the executive team were not capable or willing to deliver what was needed and had to go.

We promoted a few leaders from within, including executives who successfully grew our mobile business. We also brought in new people. I was lucky to convince Sharon McCollam, who had been CFO and COO of Williams-Sonoma, the successful multichannel retailer, to come out of retirement and join us as CFO. She was the woman we needed: investors respected her; she had fantastic experience in e-commerce; and she was a very hands-on, operational finance chief. Additionally, Scott Durchslag brought his expertise and experience from Expedia to run Best Buy’s e-commerce.

Changes in management also energized people lower in the organization who recognized these changes as a strong signal that we were serious about performance.

Starting with people also meant mending fences with Dick Schulze, who had founded Best Buy and was still the company’s largest shareholder.

Building one team with one dream

In May 2012, Dick Schulze had stepped down as Best Buy’s chairman of the board—before I was approached to become the company’s new CEO. By the time I started in September, he had launched an offensive to take the company private and was at war with the board. A company fighting with its founder seemed crazy to me. I greatly admired what Dick had accomplished and said so to our employees. Whether we were going to be private or public, he would remain Best Buy’s founder and largest shareholder, and I wanted to build a positive relationship with him. I knew Brad Anderson, who had been Dick’s right-hand man for years and Best Buy’s CEO between 2002 and 2009. I asked him to introduce me to Dick, and he did.

In October, a month after my stint in St. Cloud, I headed to Dick Schulze’s family foundation office, a few minutes from Best Buy’s headquarters. I entered Dick’s office, wearing a suit and tie, and handed him my résumé. “Under normal circumstances, you would have interviewed me,” I explained. “So I wanted to introduce myself properly.” Dick later told me that my gesture had touched him.

Dick and I could not have been more different: he had spent his entire life building a retail business, and I had no retail experience. He knew Best Buy inside out, and I was an outsider. Still, we managed to find common ground. Dick immediately struck me as a genuinely good, caring human being. He was simply worried about the trajectory of the business he had built and wanted to do something about it. I shared with him some of my basic business philosophies about people and customers. I also shared that I had no intention of blindly slashing stores or headcount, both of which I considered Best Buy’s great strengths. By the end of our conversation, the ice had been broken.

The next month, at Thanksgiving, I flew to Dick’s home in Florida with Hatim Tyabji, the chairman of Best Buy’s board at the time. By then, we had told investors how we proposed to turn around Best Buy. Hatim and I wanted to explore how we could work with Dick and Brad to help restore Best Buy’s health. It was clear that we all were eager to act in the company’s best interest. Hatim, for example, indicated that he would have no problem stepping down as chairman of the board, if that was an issue. But it was also clear we were not yet totally aligned. During discussions at his lawyer’s office, Dick generously offered to keep me as CEO should his attempt to buy out the company succeed. He then added that my mission would be to execute the plan he had developed together with Brad and Al Lenzmeier, the company’s former CFO and COO. “I am really very good at taking input,” I respectfully told him, “but I am terrible at taking directions. As, I suspect, you are!” We all laughed, which further lightened the mood.

By January 2013, Dick’s private equity partners were struggling to put a real bid together. By the end of February, an alternative plan for a private investment in the publicly listed Best Buy was also dead after we failed to agree on terms. But I still wanted to find a way to work with Dick. The feud had been distracting and affected employees, many of whom knew Dick from his days as CEO. It was time to put the 10-month drama behind us and move forward.

Finally, in April, Dick Schulze agreed to rejoin the company with a new title: chairman emeritus. Although he was not rejoining the board, he agreed to provide his sage counsel to me. The Best Buy family was reunited. The war was officially over, and we could bring our talent together in service of the turnaround.

Growing the top line

The first priority was to boost revenues. Industry analysts had been predicting the death of big box retailers, blaming online competition. So, we decided to take the Amazon bull by the horns: in October 2012, ahead of the crucial holiday season, we announced that we would match online retailers’ prices—including, of course, Amazon’s. This would ensure that customers had no reason to showroom. We would turn the same foot traffic into more sales. We had quietly tested the idea in our Chicago stores, analyzed the results, and concluded it was worth the gamble: the boost in sales would compensate for the cost of matching prices. Our decision made a big splash.

We also revamped our website and our online shopping approach. No more “Cinderella” searches spitting out Nikon cameras. One of our most dramatic moves, initiated by Sharon McCollam, was to unlock our ability to ship online orders directly from our stores. As 70 percent of the US population lives within 10 miles of a Best Buy store, this would dramatically cut down the time it took us to deliver online purchases, which would help boost online sales.

We also worked hard to make shopping in our stores more pleasant and rewarding. We invested in the training of Blue Shirts and, as discussed in chapter 6, we began partnering with tech companies to help them showcase the fruit of their billions of dollars of R&D investments.

We also overhauled store floor plans. Growing categories like phones, tablets, and appliances expanded their footprint. Square footage for media like CDs and DVDs shrank dramatically.

Reducing nonsalary expenses

Next, we went after nonsalary costs with great intensity. We initially endeavored to eliminate $725 million in costs over several years. There was a lot we could cut, but that is still a big number. CFO Sharon McCollam applied her considerable retail experience. Improving returns, replacement, and damages alone, she figured, represented a $400 million opportunity. Televisions are a good example. Flat screens break easily and given how much they get moved around from factory to store to car to home, they break a lot. About 2 percent of our TVs ended up damaged during that journey, costing us some $180 million a year. Reducing even a fraction of that breakage would save significant costs.

We worked with manufacturers to find ways to design more damage-proof TVs and to improve packaging to better protect them, including by printing clear instructions on how to store them—standing please, not flat. We trained our warehouse and sales staff on how to handle them, and made sure these TVs were stored low, reducing the chance they would fall. We offered to deliver them to customers for free, and for those who insisted on cramming TVs in their car, we shared instructions on how to best handle the box to minimize risks.

In the same vein, we found ways to optimize product returns. Customers returned about 10 percent of what they bought from us, which cost money and time. Take large appliances like fridges. It is not uncommon for these to get dented when they are being hauled up stairs or around tight corners while being delivered to customers’ homes. We first gave customers better online instructions on how to measure their space. And if what got dinged happened to be the side or the back of a built-in fridge, for example, we gave latitude to our delivery and sales staff to offer gift cards instead of returning an entire fridge for a minor cosmetic damage that would become invisible once the appliance was installed. Similarly, instead of sending back to suppliers the computers that were being returned to us, we decided to use our broad physical and online footprint to resell them directly—which optimized overall recovery and earned us an allowance from manufacturers.

We also loosened rules to prevent plainly goofy, crazy, and stupid waste. In April 2013, for example, I visited one of our return centers in Kentucky. The place was huge, with conveyor belts churning rejects that customers had decided they did not want after all. On one of the belts, I spotted a green marker. A single pen that one of our stores had sent to the return center. That pen had traveled hundreds of miles at great expense, vastly outweighing any benefit that the return center might extract from its recovery.

This was crazy, but the store had strictly followed policy and procedures. I took a photo of the lonely green marker and projected it at our next meeting of store managers. I told them that if anyone on the front line saw anything crazy, goofy, or stupid—like a green marker being returned from a store—they should override whatever policy was in place. If you see something, say something and do something.

Besides returns, replacement, and damages, we also paid attention to more extravagant low-hanging fruit. Executive trips on private planes were nixed. In January 2013, I happily walked to seat 36B in economy class to fly to the Consumer Electronic Show. This sent a very clear message to our vendors and our teams. At the same time, Sharon McCollam was not going only after big-bang cost-cutting ideas. No cost saving was too small: we turned to double-sided black and white printing instead of color. Even if it only saved marginal dollars, it set the right tone.

Optimizing employee benefits

One of our first and easiest decisions on benefits was to restore the employee discount. I had learned in St. Cloud how unpopular the decision to scrap it had been among employees. This had been hurting their morale—and therefore their willingness and ability to give their all to our turnaround. We also focused heavily on health-care costs, which typically grow by 6–8 percent a year for US employers. What could we do to optimize these costs while making sure our employees’ health was still well protected? We looked closely at what was driving our health-care costs up. We established a wellness program and expanded prevention to help employees stay healthier. Once again, we collaborated with our vendors—insurance companies this time—to find solutions.

Cutting jobs as the last resort

For Best Buy, 1 + 2 + 3 did not quite add up, and we did reduce headcount. During the Renew Blue turnaround period, for example, we eliminated unnecessary management layers and shut down nonstrategic departments and initiatives—such as a service that made the Geek Squad available to other retailers. We also streamlined at the top. Anyone and everyone appeared to have a chief of staff, for example. That was not necessary.

But eliminating positions does not always mean eliminating people. In 2018, we decided to close our Best Buy mobile phone stores. It no longer made sense to have separate stores dedicated to cell phones. But I made sure that we did not run to the blanket severance package standard approach. Instead, we sent a letter to all the staff employed in these stores. The letter explained how we would assist them in any way we could to find other roles within Best Buy and sincerely hoped they would choose that option, as we valued their contribution.

There were opportunities for them. Like in most retail companies, natural staff turnover and size give us flexibility. College students who work at our stores to help pay for their studies graduate and leave. People move, or move on. Even after everything we have done to build an engaging work environment, store turnover still reaches 30 percent. It is much lower than the nearly 50 percent pre-turnaround, but it is still a lot of jobs to fill every year. Plus, we were becoming a growing business. The development of a team of in-home advisors, for example, meant new jobs were being created. We offered some of these jobs to most of our mobile store staff and worked hard to make sure that everyone felt that they could stay if they wanted to. Not everyone did—and those who left were entitled to a severance package—but we did all we could to give them that option. This is the right thing to do, because it is human and it makes financial sense; no place for “or” here and elsewhere. It was an easy decision to make—and to explain to shareholders.

Growing revenues, streamlining nonsalary expenses, optimizing employee benefits—these are the kind of interventions that typically do not make headlines—except for our decision to match online prices, which did make it to the newspapers. These actions are not as dramatic as slashing headcount, but they are far more effective: since 2012, Best Buy has saved about $2 billion in costs, about two-thirds of which were nonsalary expenses—far beyond the $725 million we initially targeted. The company has continued to find ways to eliminate between $200 and $300 million in costs every year. These savings have in large part been invested back into the business, making sure we continue looking after all our stakeholders.

The Renew Blue turnaround did not work in spite of our efforts to stave off workforce cuts, but instead because of it. Other measures are more effective because they make things better for customers as well as vendors and have a meaningful financial impact on the bottom line. And they are more effective because they safeguard the lifeblood of the company: the human talent, experience, dedication, and heart that constitute the core of a purposeful human organization.

Cocreating a good enough, not a perfect, plan

Shortly after I started, the board of directors made it clear we needed to come up with a plan by November 1.² That gave us 57 days. “This is crazy!” said Maurice Levy, the CEO of Publicis, whose team was advising me on our corporate communications. He thought it could not be done and was a particularly dangerous effort.

Early in my career, when working at McKinsey, I had been trained to diagnose businesses and concoct long-term strategies. Other people would then execute these strategies. This traditional strategic planning approach, developed in the 1960s and 1970s, was still the norm. A few smart people at the top were supposed to come up with a strategy and a long-term plan, which lower echelons would then execute.

Eight weeks was indeed not enough time for that kind of approach. But that was okay with me, because beyond time, there are many problems with such an approach. For starters, it likely will fail to capture the insights of people who know in more detail what it will take to succeed. Also, people usually do not like to be told what to do if they have not been involved in creating the plan.

Our deadline did not trouble me because I also knew from previous experience that turnarounds are not about long-term planning, at least not initially. They are primarily about identifying what drives performance, about operational improvements, and—above all—about action. “Operational progress creates strategic degrees of freedom” is something I learned from the CEO of Cargill when he was on our board of directors at Carlson. We did not need a long-term strategy. We needed a plan to “stop the bleeding” and to quickly and tangibly improve our operational performance. And for that, eight weeks were enough. In eight weeks, we could at least frame the problem we had to solve, set a broad direction, and get going.

There would be no top-down grand strategy. To figure out how to save the company, everyone had to roll up their sleeves. In a series of two- or three-day workshops, about 30 of us from all parts of the business gathered around a U-shaped table in a conference room on the ground floor of Best Buy’s headquarters.

Our approach? Start where Jean-Marie Descarpentries would: People ➞ Business ➞ Finance. We looked at the employee discount. We looked at the stores’ floor plans—I had kept the napkin drawing from my visit to St. Cloud. We looked at pricing. We identified gaps and bottlenecks in our operations. During these intense workshops, I became known as the camel, turning down water and coffee breaks.

Before the deadline, we had our turnaround plan.

We still had to come up with a name for the plan. I had learned over the years that a plan needs a name to exist in the collective mind of the organization. I asked everyone to think about potential names overnight. The next day, we all chimed in and wrote 30 or so possible names on a flip chart. After putting it to a vote, we decided that “Renew Blue” sent the right message and was catchy.

Before presenting Renew Blue to investors, I ensured we had the buy-in from our broadly defined leadership group, the Best Buy Operating Council, which includes the top 150 most senior people. Unless we had everyone “all in” on it, this would not be much of a plan.

In November, we presented Renew Blue to the investment community. We introduced what we wanted to achieve for shareholders, but also for employees, customers, vendors, and the world around us. The company was in serious trouble, but our approach was to look after all stakeholders. No “either/or” here. No Friedman doctrine.

Our plan was not perfect, but it was good enough. Internally, it reminded everyone what we were good at, highlighted our shortcomings, and outlined a set of clear priorities around customers, employees, vendors, shareholders, and community. It delineated the path to move forward and keep us afloat.

Keeping pedaling and keeping it simple

A good plan was all we needed to create momentum and hope and get people engaged. Making decisions fast—like matching online prices and reinstating the employee discount—was crucial. It boosted people’s energy and created a sense of possibility and hope. What separates great leaders from good leaders is not the quality but the quantity of decisions. More decisions create more momentum and energy. These decisions will not all be good ones. But if you know how to ride a bicycle, then you also know that it is much easier to correct course when you pedal your way forward than when you stand still.

Besides creating momentum through decisions, clarifying what is most important and keeping it simple unleashes energy; complexity creates confusion, overwhelms, and sows inertia. I knew from my visit to St. Cloud that Best Buy store managers, for example, were asked to keep their eyes on so many metrics that they could not see the forest for the trees. Imagine their reaction when they heard me say the company had only two problems: revenues were down, and margins were down. Only two problems? Not 40 KPIs? This was great news. How hard could it be to solve just two problems? Everyone had to keep their eyes, brains, and energy on these two prizes. What was standing in our way of growing revenues and growing margins? We would tackle the worst roadblocks first and then focus on the next ones.

Wait. Didn’t I say earlier that focusing on numbers is not inspiring? That a company’s purpose is not to make money? Yes, I did. This does not mean that you ignore numbers. Profit is an outcome, but also an imperative. When the business is dying, you have to stop the bleeding. We were doing that while also maturing into a purpose-driven company. Even back in 2012, several years before we would articulate our purpose as enriching lives through technology, we had defined our plan around all stakeholders, guided by the desire to be the preferred destination and authority when it came to technology.

While we were focusing on staying alive, measuring against these two problems (and only these two) over time would tell us whether we would survive as a business. It would allow us to keep our fingers on the pulse as we moved forward. This was how we would measure progress. And we would identify where and who within the company was improving the most and the fastest. Then we could learn from that progress.

Creating a positive environment

The sense of urgency and clarity that contributes to putting the organization under (productive) tension comes hand in hand with creating a positive environment. No one does their best work when under severe stress or when driven by fear. Creating optimism, energy, and confidence in our future started with me. I had to be upbeat and optimistic, no matter what. When I was still at Carlson, I remember feeling drained at the end of a long day during a convention with thousands of hotel franchisees. I decided there and then that I was not tired. It was the same in those early days of Renew Blue. I get to decide how I am going to show up. Every day.

We celebrated wins any chance we got. Our communications team, headed by Matt Furman, was actively searching and sharing nuggets of good news. Look, we are growing in Chicago! And look at how well our small appliances are doing! At every team meeting and every company town hall, we highlighted what was going well. This all sent a fabulous message throughout the ranks.

We adopted the same approach with our investors. In our November 2012 presentation, we started our diagnosis by highlighting Best Buy’s great strengths, such as the innovation driving growth in our consumer electronics market and the fact that we accounted for the largest single share of sales in that market. At the same time, we did not sugarcoat our operational challenges, from mediocre customer satisfaction to lackluster online performance, which weighed on financial returns.

Throughout the turnaround, we kept sharing our wins. In early 2013, for example, we tried out shipping online purchases from 50 stores. This was a green shoot initially, with a marginal financial impact. But our CFO, Sharon McCollam, kept bringing it up in her conversations with investors, explaining why this was meaningful. Over time, the green shoot grew bigger roots as it expanded across our stores, and the initiative eventually put a major boost in online sales.

Looking on the bright side, radiating energy and celebrating wins does not mean glossing over what is not working, however. Do you remember Alan Mulally and his system of red-amber-green lights? Ford was facing bankruptcy, but all the lights were green. To save a company, bad news has to travel at least as fast as good news. You cannot solve problems if you do not know where they are.

Being positive and acknowledging challenges are both necessary, and neither can dominate. When we were working through our Renew Blue plan, one of our bright staff in the strategy department produced a 300-page PowerPoint deck highlighting all the familiar issues and challenges we had to address. The presentation concluded that Best Buy was doomed. If you are not able to turn challenges into possibilities and silver linings, then you have no business leading a turnaround. I decided to ignore the PowerPoint presentation’s gloomy prediction.

Being transparent and encouraging vulnerability

When preparing our Renew Blue turnaround plan, we had faced a dilemma. Should we keep it under wraps until the investor presentation in November 2012? Or should we share it within the company, get feedback, and make sure that everyone was all in? Best Buy is a listed company, and any leak to the media would have affected the share price. Should we choose to be fearful and suspicious? Or should we trust our people? Our executive team was split. There had been damaging leaks to the media in the past. But I believed that the risk of leak was far smaller than taking the risk that our people would not own the turnaround plan. Three weeks before the investor presentation, we gathered 150 of our managers and shared our draft plan. We made it very clear that what we were about to share and discuss was highly confidential. We got valuable feedback and buy-in, and there was zero leak.

Throughout the turnaround, we discussed openly within Best Buy and with our shareholders our situation, our priorities, our opportunities, our challenges, our progress, and our “say/do” ratio. This energized our teams and promoted accountability.

I was not afraid to ask for help either. Three months after I became CEO, I brought in my coach, Marshall Goldsmith. Deep into our turnaround, I asked my team for feedback. I shared with them what I wanted to be better at, which included becoming better at delegating. I did not pretend to have all the answers or to be perfect. I asked for help—and received it—from my very first days at Best Buy, whether working in the St. Cloud store or with the executive team.

We had to do the same as a company. We had to leverage other people’s strengths and look for partners if we wanted to survive. This is how we collaborated with our vendors, as we talked about in chapter 6. This is why we asked other suppliers, such as Accenture, IBM, and UPS, for temporary discounts. We were not afraid to ask for help. And we got it.

This signaled within the company that no one should be afraid to be vulnerable. No one should be afraid to ask for help. No one should feel he or she had to pretend to be invincible or perfect, because we are all human, and it is in our vulnerability that we connect and unlock the power of the collective. This is how we connect with each other. This is how we connect with our customers, suppliers, communities, and shareholders. This is what a purposeful human organization is made of—in sickness and in health, in good times and in bad ones.

In January 2013, just a couple of months into Renew Blue, we reported sales for November and December 2012. The preceding quarter’s results had been a disaster, but we had excellent news to announce: compared to the previous year, our sales were flat.

Flat sales! We were thrilled! It was far better than the slump analysts expected. It suggested that we had stopped the hemorrhage. The market was blown away, and the share price started to recover. We had turned a corner. The change of mood within Best Buy was palpable. We kept going with our turnaround plan, feeling a pleasant wind at our backs.

To this day, many Best Buy employees tell me that the few years of our Renew Blue turnaround were one of the best times of their professional lives. We were on a mission together, and the energy was electrifying. Together we navigated the storm and were exhilarated as we defied all expectations. We were supposed to die. But even now, people who went through it still remember that we had only two problems, and we solved them.

What happened at Best Buy during Renew Blue is what I call “human magic.” It is what happens when each individual within the company is fired up and when everyone working together achieves more than they ever thought possible. Human magic results in irrational—irrationally good—performance.

Successfully building a purposeful human organization—whether in good times or in a turnaround—requires unleashing that kind of energy.

We unleash this human magic by creating a daily work environment where every individual can feel engaged and all-in. That is what part three is all about.

Questions to Reflect On