The lessons of Circuit City

Last Friday’s posting made a passing reference to Circuit City. In numerious previous postings, I have held up the now-bankrupt Circuit City electronics retail chain as the example of how not to foster your intangible assets. Now comes an article on the HBR blog by Alan C. Wurtzel on “What Circuit City Learned About Valuing Employees.” Wurtzel is the son of Circuit City founder Sam Wurtzel.
Wurtzel describes how his father became a devote of Douglas McGregor’s “Theory Y” of management. McGregor’s Theory Y argued that workers should be treated as valuable assets — in contrast to what McGregor called Theory X which treated workers as simply cost. According to Wurtzel, the difference between the two is what doomed Circuit City:

Between 1949, when it was founded, and 2000, Circuit City became the largest and most profitable independent retailer of consumer electronics in the country in part because it valued its employees and helped them to grow. However, in the last nine years of the company’s life, new management increasingly relied on Theory X. Yes, the environment was challenging and other mistakes were made. But perhaps the biggest one was to treat staff as disposable economic units. In any business, especially one dealing with the public, employee morale is crucial. When workers are treated as cogs in a machine instead of flesh-and-blood human beings, they naturally fail to give their best efforts. When that happens, sales and margins decline, turnover increases and profits plummet.

Wurtzel goes on to make another important point:

Today, most modern companies use Theory Y policies to attract, retain and motivate staff. They invest heavily in orientation, training, and professional development; their management is interactive and open management; and their performance reviews are as McGregor wanted them to be. At the same time, technology has the potential to take us back to Theory X. Employers can now measure productivity to the split second. Call centers, for example, know how many calls an operator handles per hour, the average time per call and how many sales were made or disputes resolved. UPS can prescribe routes for its drivers, tell how long they spend at each stop and track them through GPS. Any job that regularly requires the employee to use a computer lends itself to the same sort of individual productivity analysis.

These conflicting tendencies — cost versus asset — may well be one of the defining characteristics of the workplace in the I-Cubed Economy.
UPDATE PS: The article by Wurtzel, who also served as CEO of Circuit City until 1986, is a shorten version of his new book: Good to Great to Gone. The title is a take off of the 2001 book Good to Great that touted Circuit City’s successes.

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