Pirates: Somali, Illegal Downloads & Jack Sparrow

Portfolio.com recently published an interactive map showing how pirates of every type—from hostage situations to MP3 downloads and Disney franchises—are affecting the business world.

Click here to explore.

How Best Buy is Surviving the Holiday Season

For Black Friday, the nation’s largest shopping day of the year, the manager of a Manhattan Best Buy set up amenities for both employees and customers: a new Red Bull vending machine for exhausted employees, and an in-store dog sitting service for stressed out customers.

The retail electronics industry has been struggling for the past year to remain profitable, and Best Buy may be one of the last standing major players.  An article from Sunday’s New York Times writes,

[Best Buys'] chief rival, Circuit City, recently filed for bankruptcy protection and is closing 155 stores. Tweeter, a high-end rival, shut down this week, and Sharper Image’s stores, which sold more exotic electronics, are liquidating. CompUSA closed most of its stores last year.

But no retailer is immune from the drop in consumer confidence and spending, especially one that specializes in gadgets, not groceries. Sales at Best Buy stores open more than a year were down 7.8 percent in October, compared with the same month last year. The company will not release November figures until Dec. 16, but it’s already clear that November was a brutal month for electronics retailers.

After several prosperous quarters, Best Buy president Brian Dunn was a little surprised on how quickly sales in their company changed. Other stores were closing stores, and with a few less competitors out there, customers would naturally start flocking to Best Buy, right?

Best Buy’s president, Brian Dunn, discussed the challenges the company faced. “The depth and speed with which the economy stumbled was extraordinary,” said Mr. Dunn, who started as a salesman at the chain 23 years ago. “I’ve never seen anything like it. Our business was growing really nicely and then, all of a sudden, boom!”

Best Buy is responding to the change in revenue by cutting their inventory and advertising budgets. They are also pushing a few exclusive products designed to increase traffic to the chain’s stores. Apple, HP, Sony and Samsung are recognizing the challenges and modifying their contracts to change inventory levels. Plus, like every retailer pushing high-ticket items, Best Buy is promoting their financing options.

MaximumCEO published an article recently on how companies may need to revisit their business model and ask if their way of doing business is still relevant to their industry. During the peak of the retail industry’s year, we should recognize that Best Buy is making a few gambles, but their decisions on how to change seem justified.

What ‘Structural Breaks’ Mean To Your Business

During volatile times in a company or economy, a company’s crisis may be the signal that their business model is no longer relevant to their industry.  As an industry continues to change, companies must change with it or go disappear altogether.Richard P. Rumelt writes in an article from the McKinsey Quarterly that now is the time for companies to be strategic, and adjustments are crucial for survival. 

Structural breaks render obsolete many existing patterns of behavior, yet they point the way forward for some companies and at times even for whole economies… Difficult and volatile conditions wipe out some organizations—yet others prosper because they understand how to exploit the fact that old patterns vanish and new ones emerge. The first order of the day is to survive any downturns in the real economy (see sidebar, “Hard times survival guide”), but the second is to benefit from these new patterns. A structural break is the very best time to be a strategist, for at the moment of change old sources of competitive advantage weaken and new sources appear. Afterward, upstarts can leap ahead of seemingly entrenched players.        

 Continuing with a company’s current strategic plan may not be the best option in order to weather this economy. Companies that hope to succeed will have to analyze their business strategy and ask if it is still relevant to their industry.

How Retailers are Surviving the Economy

With the current economic slowdown, high fuel prices are pushing consumers to cut back their spending.  No industry is recession-proof, but teenagers still reach a bit deeper to buy their favorite brands. Julian Geiger, chairman and CEO of the New York-based retailer Aéropostale, said on Nightly Business Report,

“Parents tend to sacrifice [for] themselves before they sacrifice [for] their kids”    

He should know. Aéropostale’s second quarter was up 43% versus the previous year, while other retailers like Abercrombie & Fitch are suffering through stagnant or declining sales to prevent jeopardizing their brand’s authority and reputation for a temporary situation. Other shops have found a new solution to increasing revenues during a recession, and it doesn’t involve manipulating prices. Erin Armendinger, managing director of Wharton’s Jay H. Baker Retailing Initiative, Wharton’s retail program, writes in an article for Knowledge@Wharton:

Noting that some teens are unaffected by the economy and will continue to shop where they want, Armendinger says that to be popular, teen retailers must offer something unique and desirable. “If you’re differentiated, you’ll win,” she says, pointing to the example of Philadelphia-based, multiple-brand retailer Urban Outfitters, which reported in early August that its second-quarter earnings were up 79%. “Urban Outfitters has very little competition in terms of their store design and products —and guess what, they are doing very well.”   

Armendinger’s examples offer hope for all executives that some businesses can survive while maintaining their premium prices.

How Pixar Fosters a Creative Community

When the media lists creative companies, Disney’s Pixar often falls at the top of the list. And how could anyone disagree? Since the release of Toy Story in 1995, Pixar has debuted a strong line of eight animated blockbusters. The surprising thought is that Pixar never bought or licensed a single script, song or character; everything was created behind their doors by their talented employees.Pixar co-founder Ed Catmull writes in an article for the Harvard Business Review on how to cultivate a sustainable, creative organization. Their secret: work in a group.

People tend to think of creativity as a mysterious solo act, and they typically reduce products to a single idea: This is a movie about toys, or dinosaurs, or love, they’ll say. However, in filmmaking and many other kinds of complex product development, creativity involves a large number of people from different disciplines working effectively together to solve a great many problems [...] The director and the other creative leaders of a production do not come up with all the ideas on their own; rather, every single member of the 200- to 250-person production group makes suggestions. Creativity must be present at every level of every artistic and technical part of the organization. The leaders sort through a mass of ideas to find the ones that fit into a coherent whole—that support the story—which is a very difficult task. It’s like an archaeological dig where you don’t know what you’re looking for or whether you will even find anything. The process is downright scary.    

Catmull offers advice for every organization when he says, “Creativity must be present at every level of every artistic and technical part of the organization.”  He also touches on the topic of taking risks. Executives are typically accustomed to reducing potential risks in an organization, but Pixar embraces new concepts. According to Catmull, when executives avoid risks, they fail to surprise anyone. That may be why Hollywood continues to be criticized for releasing similar or redundant films. From a business perspective, the goal of avoiding risks may be why we’re seeing so many similar business models in new organizations.

« Previous Page