I was once part of a leadership development initiative (in 2019) that required partnering and collaborating with a third-party vendor, which delivered a 2-day leadership development workshop.
This third-party vendor selected a video (from a leadership development consultancy) that talked about the importance of culture and showcased a CEO of a retail company.
I was quite curious about this CEO and began researching him. In the course of my research, I discovered that he was let go from his role as CEO in 2014 due to his failure to help the company achieve its financial targets. What's more, the company's revenues became so bad that it was delisted from the New York Stock Exchange. And despite being under new leadership, it filed for Chapter 11 bankruptcy in 2016 (Novellino, 2016).
I shared with the third-party partner and my senior leaders what I had found. More importantly, I recommended that we replace the video of the retail CEO with another CEO. I pointed out that culture is great and every organization wants a great culture, but having a great culture while not achieving financial targets does not help the company "succeed" and is NOT a definition of what constitutes a successful leader or company.
Here's a great example. In his classic book, Good to Great (2001), Jim Collins praised Circuit City, highlighting it throughout his book as one of the "Good-to-Great Companies." Circuit City would file for bankruptcy in 2008.
“Since the late 1980s Circuit City had been recognized by Wall Street and business insiders as the best-run, best-managed, and most profitable specialty retailer of electronics and appliances in the country.” -Alan Wurtzel (Good to Great to Gone)
“From 1982 to 1997, Circuit City’s stock price had outperformed that of the general stock market by an incredible 18.5 times, far better than any other Fortune 500 company for any fifteen-year period since 1965. Yet just twelve years later, Circuit City was no more.” -Alan Wurtzel (Good to Great to Gone)
Some reasons for Circuit City's demise included (Galuszka, 2008):
“. . . entering into expensive real estate deals, putting stores in the wrong places and forgetting core values of being the low price seller. The firm laid off its experienced sales staff and then laid off a good chunk of its higher-paid but less experienced sales staff, leaving Circuit City with its lowest paid, least experienced sales staff, not to mention a raft of frustrated customers.”
“Perhaps the biggest single failing was that in the early 1990s Circuit City came up with a brilliant idea to sell used cars — CarMax. But the CEO at the time paid too much attention to sexy CarMax. When it was spun off in 2002, he left with it, taking with him some of the most talented Circuit City managers.”
Wick (2020) provided the following snapshot of how Circuit City went from "Good" to "Great" to "Gone":
GOOD
Within 10 years, Wards became a four-store chain (founded in 1949 as Wards Company, it changed its name in 1984 to Circuit City Stores Inc.)
Total sales: $1M per year
Lower prices than smaller competitors
Stores offered service incentives
By 1979, sales reached $120M
GREAT
In 1987, annual sales reached $1B
In the 1990s, was largest consumer electronics retailer in the U.S.
Best performing company on Jim Collins' Good to Great list
Highly motivated and well-trained personnel
Deployment of sophisticated point-of-sale and inventory tracking technology
Ability to connect the flow of information among geographically dispersed stores
Detailed tracking of customer preferences
Quick response to changing trends
Implementation of 4S/5S business model
Competitors were unable to replicate their core competencies
GONE
Neglected to upgrade and protect core competencies
Top management team was distracted by pursuing noncore activities
Laid off 3,400 of firm's highest-paid sales personnel
Best Buy recruited Circuit City's top personnel
Best Buy upgraded its core competencies
Filed for bankruptcy protection in November 2008
“Best Buy’s store and staffing models were a better fit for consumers’ changing preferences; as consumer electronics became cheaper and more ubiquitous, customers no longer needed or wanted a salesperson to help them with many of their purchases. Circuit City, on the other hand, stuck to its commission-based sales force and its reliance on high-margin products, and watched Best Buy take over its market share.” -Jessie Romero (2013)
“Consumers were saying loud and clear that they wanted to shop in an open environment with sales assistance if, as, and when they wanted it. They wanted to be able to pick up a product and get out the door without having to listen to a sales pitch for a step-up product or extended warranties. Some wanted sales assistance on certain products. Some were willing to consider extended warranty protection. But no one wanted to be forced to listen to a pitch.” -Alan Wurtzel (Good to Great to Gone)
“Despite the fact that Circuit City was clearly losing market share, the management team neither asked itself what customers really want nor tested new strategies that others were finding successful.” -Alan Wurtzel (Good to Great to Gone)
“While sales and profits grew and the stock reached an all-time high in 2000, under Circuit City’s hood was an aging store base, a failing marketing strategy, an expensive workforce, and an increasingly out-of-date management information system.” -Alan Wurtzel (Good to Great to Gone)
“Since the mid-1990s, Circuit City management and the board had not had a viable plan to stem the decline in the company’s market share or the decline in its stock price. When, in 2005, the company received a takeover offer at $17 per share, 20 percent more than the current market price, the board allowed itself to be persuaded by the management team that they could magically reverse the slide and get the company back on track and the stock to higher levels.” -Alan Wurtzel (Good to Great to Gone)
As Phil Rosenzweig (2007b) wrote:
“In the quest to achieve superior performance, executives often rely on advice in business books, articles, and business school case studies that claim to reveal a blueprint for gaining lasting competitive advantage.”
“The research underpinning this advice, however, is often deeply flawed and, worse, obscures the basic truth that success in the business world is based on decisions made under uncertainty and in the face of factors executives cannot control.”
“. . . the principal fiction at the heart of so many popular business books and articles [is] that following a few key steps will inevitably lead to greatness and that a company’s success is of its own making and not often shaped by external factors.”
“The simple fact is that no formula can guarantee a company’s success, at least not in a competitive business environment.”
“A central problem that clouds so much of our thinking about business is The Halo Effect. Many things we commonly believe lead to company performance — corporate culture, leadership, and more — are often simply attributions based on company performance.” -Phil Rosenzweig (2007c)
“How is the halo effect manifested in the business world? When a company is doing well, with rising sales, high profits, and a surging stock price, observers naturally infer that it has a smart strategy, a visionary leader, motivated employees, excellent customer orientation, a vibrant culture, and so on. When that same company suffers a decline—when sales fall and profits shrink—many people are quick to conclude that the company’s strategy went wrong, its people became complacent, it neglected its customers, its culture became stodgy, and more. In fact, these things may not have changed much, if at all. Rather, company performance creates an overall impression that shapes how we perceive its strategy, leaders, employees, culture, and other elements.” -Phil Rosenzweig (2007a)
“. . . if researchers begin by selecting companies based on outcome, then gather data by collecting articles from the business press and conducting retrospective interviews, they are not likely to discover what led some companies to become Great. They will mainly catch the glow of the halo effect.” -Phil Rosenzweig (2007a)
“Does having “humble leadership” and “great people” lead to success? Or is it more likely that successful companies are described as having excellent leadership, better people, more persistence, and greater courage?” -Phil Rosenzweig (2007a)
“We need to ask: “If we didn’t know how the company was performing, what would we think about its culture, execution, or customer orientation?” As long as our judgments are merely attributions reflecting a company’s performance, our data will be biased, our logic circular, and our conclusions doubtful.” -Phil Rosenzweig (2007a)
Takeaway: Be careful when selecting a case study (i.e., profile of a leader or a company) and be especially mindful of the current relevance in which the case/story/example is presented. For instance, ask yourself if this is a person or company that is still worth considering right now. Be cautious of using old case studies drawn from popular, yet outdated business books or business articles.
As Jim Collins (2009) acknowledged: “Every institution is vulnerable, no matter how great. No matter how much you've achieved, no matter how far you've gone, no matter how much power you've garnered, you are vulnerable to decline. There is no law of nature that the most powerful will inevitably remain at the top. Anyone can fall and most eventually do.”
Written By: Steve Nguyen, Ph.D. Organizational & Leadership Development Leader
References
Collins, J. (2001). Good to Great: Why Some Companies Make the Leap and Others Don't. Collins.
Collins, J. (2009). How the Mighty Fall And Why Some Companies Never Give In. HarpersCollins.
Galuszka, P. (2008, November 22). Circuit City and the "Good to Great" Business Book Conundrum. CBS News. https://www.cbsnews.com/news/circuit-city-and-the-good-to-great-business-book-conundrum/
Novellino, T. (2016, May 6). What went awry at Aéropostale? It’s complicated. https://www.bizjournals.com/newyork/news/2016/05/06/why-aeropostale-landed-in-bankruptcy-court.html
Romero, J. (2013). The Rise and Fall of Circuit City. Econ Focus, Third Quarter, 31-33. https://www.richmondfed.org/publications/research/econ_focus/2013/q3/~/media/4EDF64C581574974B9AAE6B3D7C88A9A.ashx
Rosenzweig, P. (2007a). Misunderstanding the Nature of Company Performance: The Halo Effect And Other Business Delusions. California Management Review, 49(4), 6-20.
Rosenzweig, P. (2007b, February 1). The halo effect, and other managerial delusions. The McKinsey Quarterly. https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-halo-effect-and-other-managerial-delusions
Rosenzweig, P. (2007c). The Halo Effect and the Eight Other Business Delusions That Deceive Managers. Free Press.
Wick, D. A. (2020, July 6). Circuit City’s Lessons (Good To Great To Gone). Strategic Discipline Blog. http://strategicdiscipline.positioningsystems.com/blog-0/circuit-citys-lessons-good-to-great-to-gone
Wurtzel, A. L. (2012). Good to Great to Gone: The 60 Year Rise and Fall of Circuit City. Diversion Books.