Circuit City: 5 Factors of Success and Failure

The Rise and Fall of One of America's Largest Electronics Stores

Jul 14, 2009 Eric Coggins

In the decade of 1990s Circuit City was featured as a successful business enterprise. This article discusses some of the factors for its success and failure.

In his well-regarded book Good to Great, business researcher Jim Collins (2001) featured Circuit City Stores, Inc. as one of eleven publicly-held, Fortune 500 companies to make the transition from good to great business enterprises. Nearly, a decade later, Circuit City is no more. What are some of the possible factors that contributed to its former success and unfortunate failure?

Circuit City's Transition from Good to Great Company

In Good to Great, Jim Collins highlighted seven factors that contributed to the success companies which transitioned from mediocre performers to shining stars. Four of the possible factors that contributed to the company's transition from good to great were:

1. Level 5 Leadership

The first factor contributing to Circuit City's rise was Level 5 Leadership in the name of Alan Wurtzel. As defined by Collins' research team, a Level 5 Leader is a person who is humble and self-effacing but fully driven for the success of the company. Level 5 Leaders are more concerned about the name on building than the name on the office door and deflect credit for the success of the enterprise away from themselves to the members of their team.

2. Getting the Right People in the Right Places

The second factor contributing to Circuit City's prior success was getting the right people in the right places. Collins called this getting the right people on the bus and the wrong people off; but Wurtzel did not mention getting the wrong people off. In a letter to Collins, Wurtzel wrote: "Instead of firing honest and able people who are not performing well, it is important to move them once or even two or three times to other positions where they might blossom."

3. Asked a Lot of Questions

The third factor contributing to Circuit City's stellar performance was asking questions and finding the best answers. According to one member of the board, when Alan Wurtzel took control of the company, he did not enter the position with all the answers but instead asked a lot of questions. Such questions allowed the company to define a concept from which it evolved.

4. Defined and Executed a Viable Corporate Vision

The fourth factor contributing to Circuit City's prosperity was defining and executing a viable corporate vision. Collins called this "the Hedge Hog Concept" which is a singular strategy aimed at defining what an organization can do better than anyone esle. The company came up with the "4-S" model applied to big ticket consumer sales. The "4-S" model was an attempt at superior execution of service, selection, savings, and satisfaction.

The Main Factor for Circuit City's Failure

The main factor contributing to the bankruptcy and liquidation of the former consumer electronics company was increased competition. Best Buy continued to eat up market share; Wal-Mart kept dropping their prices on similar items, and Home Depot entered the home appliance market. The downturn in the housing market also left people with less cash for big ticket items which the company sold.

These 5 factors contributed to Circuit City's success and failure. Circuit City was touted as a stellar performer in the 1990s, but after the first decade of the new millennium they are no more. This article examined some of the possible reasons for the rise and fall of the former consumer electronics giant.

Sources:

Collins, J. (2001) Good to Great. New York, NY: HarperCollins Publishing

The copyright of the article Circuit City: 5 Factors of Success and Failure in Business Management is owned by Eric Coggins. Permission to republish Circuit City: 5 Factors of Success and Failure in print or online must be granted by the author in writing.

The Rise and Fall of a Good to Great company

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Sep 16, 2009 10:28 AM

Guest :

Eric, great article. I recently published a free eBook called "CIRCUIT CITY SIX - Six Fatal Mistakes of a Once "Good to Great" Company." It can be downloaded at this link: http://www.eamesmgmt.com/CIRCUIT_CITY_SIX_eBook. Please, take a look if you're interested (it's short). It would be great to hear your comments.

Sincerely
Don Eames
Former Senior Vice President of Best Buy

Sep 16, 2009 7:41 PM

Eric Coggins :

Dear Don, Thank you for the encouraging comment. I appreciate it very much. As you suggested I read your ebook concerning Circuit City and it is masterfully written. The points you make are very appropriate to Circuit City's situation. I completely agree with the assessment of the way Circuit City went about cutting out the appliance section of their business. I recently read Leading the Revolution in which the author Hamel speaks loudly about formulating a new strategy before the old one is dead. Thank you for the insights. I can use these in a class I teach at a local university.

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