You can learn a lot about a person by how they behave under challenging circumstances. When Bob Willett, CEO of Best Buy International and CIO, flew in to speak at our annual conference—held in Bermuda this year—little did he know that he was going to miss his connection in Miami and spend the night at an airport hotel instead of taking in the beautiful beaches in Bermuda. But rather than think about his own woes, Bob was more concerned about getting the airline to help a woman he didn’t even know so she could get to her daughter’s wedding in Bermuda. Mr. Willett then offered to come and speak the next evening (instead of the morning slot he was slated for) which we eagerly agreed to … and we’re glad we did!
Customer-centricity
That’s why I was inclined to believe Bob Willett when he spoke about customer-centricity for Best Buy—he’s someone who lives it with each person he meets as a human being. As North America’s largest electronics retailer, Best Buy’s phenomenal success—they grew from $5B a decade ago to $31B today and still growing more than 10% per year—can be attributed to how they leverage their supply chain and technology, not just to improve efficiency, but also to enhance the customer experience and build a strong trusted brand.
One angle that Bob discussed, that has been written up extensively in the press (and discussed in blogs), is how Best Buy segments their customer base by five customer types (now eight), which they name:
- Barry – affluent professional technology enthusiast (the kind who would plunk down for an expensive home theater system)
- Buzz – active young gadget-loving guy
- Jill – busy, soccer mom
- Ray – practical, price-sensitive family man
- BBFB (Best Buy for Business) – small employer
After carefully analyzing their surrounding demographics, each store caters very specifically to one or more types, and employees are coached on how to gauge and deal with each customer appropriately. Bob talked about how Best Buy works hard to get honest feedback from customers and how some of it has been quite blunt—for example, they learned how many women felt very uncomfortable with their store experience from numerous aspects. Best Buy uses this feedback to improve employee training and to address those segments better. When Mr. Willett mentioned this, one of the women participating in the conference said she personally had seen a dramatic improvement during the last year in they way her local Best Buy employees treated her. She used to want to get out of there as quickly as possible, but now spends a lot more time in the store. Bob’s response to this was “thanks, but I know we still have a long ways to go”. That is a good sign coming from the most successful electronics retailer, since arrogance and complacency has been the downfall of so many successful companies.
Figure 1 – Best Buy’s Customer-centric Business Architecture
Reigning in IT Complexity
When Bob started as CIO, he had inherited an organization that had grown extremely fast and had too many unintegrated systems – for example, they had five different labor scheduling systems, seven order management systems, three tax applications, and four separate warehouse management systems. Their strategy now is to move to common platforms for marketing, sales, service, and operations; but at the same time allow individualization to serve the varying needs of each channel, different customer segments, multiple brands, individual stores, and ultimately, each customer. To achieve this, they have developed “Business Operating Blueprint” to reduce the number of software interfaces from about 64,000 down to about 7,000, and from 800 technologies down to approximately 250. Bob’s goal is to leverage opportunities to reduce IT spending (especially in retail platforms) from 2.1% of sales down to about 1.5%, while simultaneously making the organization more responsive and providing more capability. That’s quite a trick. Some of the elements of this transformation:
- Moving from multiple, disparate plans, forecasts for demand, deliveries, and labor, to an integrated single version of the truth.
- Using technology to create a more seamless multi-contact experience.
- Moving from monolithic applications to a Service-Oriented Architecture to enable continual evolution.
Bob also discussed some of the lessons learned from the IT transformation efforts:
- Change impacts are significant and must be proactively managed to help users absorb the change.
- Demand for new capabilities from the enterprise must be tightly managed while the broader transformational capabilities are being deployed.
- “Vanilla” functionality represents a significant reduction in scope, potentially lowering IT expenses, but it can also create tension and delays in decision making.
- Timely definition of Service Level Agreements (SLA’s) is critical.
Store Level Performance
In addition, Best Buy is doing a number of things to improve the customer-facing store level performance:
- Removing as much work as possible from store associates and pushing it back to the supply chain (e.g. store ready merchandise).
- Replacing standard assortments with store tailored (“voice-of-the-store” driven) assortments, quantities, and bundles.
- Bundles and Solutions are kept together and replenished in a coordinated way.
- Tools to determine products location within stores let the store associates focus more on customers and reduces the inordinate time spent on finding and restocking products.
- Moving from infrequent replenishment to quick response, anticipating store needs.
Theses efforts have paid off, with improved out-of-stock from 70%-80% up to 94% and even higher 96% for promotions.
Figure 2 – Store and Channel Transformation
Another thing that Best Buy is doing: instead of using one style forecast for all demand, they are using different forecasting models to fit the specific product demand characteristics:
Figure 3 – Adjusting Forecasting Approach to Fit Demand Pattern
RFID and Technology to Improve the Customer Experience
Bob is also keen on using technology to improve the customer experience. For example, he talked about eliminating the checkout, saying “We go to extraordinary lengths to get someone to come to our store and actually decide to buy something—then we make them wait in line to pay.” Other elements of Best Buy’s vision include Digital Shopping Assistant, smart signs, smart shelves, and automatic receiving (See Figure 4). Best Buy is already making good on some of these, such as the use of smart shelves.
Figure 4 – Best Buy’s “Store of the Future” Vision
It is notable that most other retailers are focused on RFID almost solely for supply chain functions. In contrast, Best Buy has been a pioneer on looking for ways to use RFID not just for the supply chain, but also to create value for their customer and enhance the customer experience.
Figure 5 – Current and Planned Uses of RFID
Smart Shelves – Smart Results
The results from Best Buy’s trials using smart shelves for Video Games have been promising. Rather than having to constantly monitor the shelves where fast-moving DVD games were displayed, store associates received alerts on their handheld PDA whenever any specific title was getting low. In addition, smart shelves in the back store room allowed them to know exactly where to get those titles to restock with the least amount of time spent. This allowed associates to spend more time with customers. More importantly, it provided considerable revenue and margin lifts by increasing the rate of customer facing games in the store (see Figure 6). Video Game buyers are notoriously impatient to get the latest hit titles and will go elsewhere in a heartbeat if you don’t have what they want (aren’t we all like that for the certain things that we “must have”?).
Figure 6 – Results of RFID Trial
Humanness Makes Great Leaders
After Bob’s presentation, we had dinner in the Newport Room (a five diamond restaurant, with a brass and mahogany Yacht motif, that credibly claims to be the “premier dining experience of Bermuda”). I was impressed by how relaxed and unruffled Bob was throughout this whole affair, after all his travel tribulations. I particularly liked how warm, gracious, and engaging he was with everyone, without needing to know whether you were a big shot or a “nobody”. To me, that’s the sign of a real leader. With leaders like that, it is no surprise that Best Buy is doing well.