Knowledge Matters. (Just Ask Circuit City).

Conniemoore By Connie Moore

You've probably seen them by now--the guys standing by the roadside waving big signs that exclaim "Going Out Of Business!" and promise savings of 50-70% on electronics and appliances. That's right, Circuit City is now the latest victim of the recession of 2008-2009. 

Or is it?

Do you remember back in March 2007 when Circuit City committed one of the biggest public relations blunders ever done by a major corporation?  At that time, the company was feeling some financial and competitive stress, so it decided to layoff 3,400 of its highest paid sales staff and replace them with lower paid workers. Rather cynically, the company said that experienced workers could reapply for their jobs if they were interested in working at the lower salary.

Laying off workers--or making them redundant as the Brits call it--is nothing new.  Companies do it whenever product demand slackens, inventories mount and expenses threaten profitability.  But what Circuit City did was more brash than that.  It decided to take the most experienced sales people who interacted with customers on a daily basis and replace them with newbies who didn't know much of anything about how things worked.  That meant customers got the short shrift as inexperienced staff tried to ramp up the learning curve as quickly as possible.

I remember at the time saying to my husband that I would no longer shop at Circuit City. And I was true to that promise; I never shopped there again. Heck, I never even went in the store again. I thought that decision back in 2007 was a loser all the way around--the customers were hurt, experienced employees were hurt, the company was hurt and nobody came out a winner.  The company was banking on the hope that whatever hits they took in sales revenue would be made up by lower payroll costs.

I haven't  done an in-depth analysis of why Circuit City is closing its doors.  But I'm sure it has a lot to do with reduced consumer spending.  And yet, I think the seeds of the company's demise were planted when it decided that employee knowledge and know-how, plus experience and insight were less valuable than cheaper workers.

Why do I bring this up?  It's layoff season now, and many folks in IT, and in information and knowledge management specifically, will be asked to rank employees and target individuals for layoffs.  It's a tough reality in these economic times.  When that happens, keep in mind that knowledge really does have value, it has meaning on the balance sheet even if you have a hard time measuring it.  And be very careful about getting rid of experienced workers . . . it may come back to haunt you.

Comments

re: Knowledge Matters. (Just Ask Circuit City).

As I understood it, they had a commission-based sales force, and they got rid of the highest-paid people. Also known as everyone who could actually sell. Brilliant.(Though CC always had other issues, too.)

re: Knowledge Matters. (Just Ask Circuit City).

Glad you brought this up Connie. Too often we fail to look back more than a couple of quarters for root causes. This one reminds me of what happened at a major appliance firm in the UK a few years ago.I was contracted to do an analysis of the firm's sales figures, which had declined after a recent merger and management shakeup. Meeting with a senior sales rep in the UK over a very leisurely pub lunch I was told the "secret" of the drop in sales: commission caps.Apparently the new CEO was miffed that some sales reps sometimes earned more in commission than he made in salary. Therefore he had capped the amount of commission any rep could earn, at a level somewhere below his CEO income. My lunch guest had not taken kindly to this and was now intentionally under-performing, spending more time at lunch and with family, and shifting a lot fewer boxes.

re: Knowledge Matters. (Just Ask Circuit City).

Thanks Nathan and Stephen for your comments. As the economy worsens (and I believe we are in for even harder times in 2009 than 2008)executives and senior managers will reach for anything that helps ease the corporate pain. Sometimes that will be layoffs, other times it will be commission plan adjustments or compensation/bonus changes or something else.The thing to watch out for is the Law of Unintended Consequences--as Stephen so beautifully describes. (The best example of the Law of Unintended Consequences that I know of is the US invasion of Iraq.) Nathan is right that Circuit City had other issues, and management was probably trying to do the right thing, but it backfired in a spectacularly bad way.The nuances of how companies compensate customer-facing employees, and particularly sales employees, really matters. Plus, valuing knowledge--that elusive, hard to measure asset--is tremendously important in my opinion. If a company is considering layoffs,look at each employee's knowledge and insight into how things are done as one of the dimensions of evaluating that employee's contribution. Don't think that knowledge transfer--having experienced employees teach or mentor less experienced employees--will work in a layoff situation. Knowledge transfer is hard under the best of circumstances.