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Bottom Up Innovation at Best Buy 8 Aug 2005 “We’ve changed the whole face of Southern California”
Chris Applegate, Best Buy Sales Associate
Chris Applegate and his wife
In 2002, Chris Applegate was a sales associate at Best Buy store 127 in Lakewood, California. He learned about Vonage’s VOIP service and thought that it was a great offering for Best-Buy customers.
So he created a Vonage sales and marketing program, including training for other Best Buy sales associates and newly designed “endcaps” -- those displays that are at the end of the aisle – for his store in Lakewood. And Vonage sales at Lakewood increased substantially.
So he expanded his selling program to other stores in Southern California. And Best Buy sales of Vonage products increased substantially across Southern California.
This is what Chris means when he talks about changing Southern California. Through his efforts, thousands more customers are using Vonage than would have been the case had he not pushed the product.
Chris is practicing Best-Buy’s bottom-up innovation. For the last several years, Best Buy has been developing this disciplined innovation approach. Every associate is encouraged to try new ways to increase Best Buy’s sales and profits. They are rewarded financially when they succeed, and in lots of other ways just for trying.
The effort has resulted in a number of major new initiatives for the company. For example:
Ø The Geek Squad – Best Buy’s “24 Hour Customer Support Taskforce.” Members of the geek squad will come to your home to repair malfunctioning computers. The program has been so successful that there are now free-standing Geek Squad locations which are not linked to Best Buy retail outlets.
Ø Technojunk trade-in – Best Buy will take your old consumer electronics and give you credit against new Best Buy purchases.
These programs, and many others, came as the result of a systematic, disciplined bottom-up innovation program.
“Every one of our associates is trained in a method that starts with a hypothesis, and then proceeds to stages like test and verify. At the end of the experiment, the Associate who undertook it reports out on what he or she has learned.
These are quick ‘popcorn-stand’ like experiments. If we want to try something new, we might pitch a tent in the parking lot of one of our stores and test an idea out with our customers.”
Kal Patel, Best Buy’s EVP of Strategy, Conference Board Conference, 24 May 05
Like most innovation efforts, the goal of Best Buy’s bottom-up innovation is improved growth and profitability for the company. And in recent years, Best Buy has been performing quite well along these dimensions, with sales rising about 30% over the two year period from March, 2003 to March, 2005. During that same period, the company’s operating earnings were up about 50%.
In pursuing this bottom-up approach to innovation, the company and its sales associates are realizing a number of additional benefits. Bottom-up approaches create excitement and enthusiasm among Best Buy employees. As Patel noted at a recent Conference Board Summit:
“We want to give everybody a chance to innovate, and give them the tools to do so successfully. Giving our associates a chance to test out their ideas is very energizing. ”
Or, as a Best Buy associate noted on a retail worker’s website:
“I’m so happy with my job at Best Buy because we have so much fun … ”
Anonymous posting on retailworker.com’s discussion boards
This kind of enthusiasm and empowerment has enabled Best Buy to effectively implement some top-down innovation as well -- its new “customer-centric” stores and selling approach. In stores which have been converted to this customer-centric approach, sales associates offer specific product suggestions to fit a customer’s specific needs and lifestyle.
In its most recent earnings announcement (on 15 June 05), Best Buy said that stores which had been converted to a more customer-centric model delivered twice the same-store sales gain, and a higher gross profit rate, than those which had not yet been converted.
All of that said, Best Buy’s recent innovation experiences run counter to the prescriptions of a number of management writers.
First, many analysts doubt whether this kind of merchandising innovation in retailing can be very powerful or sustaining. I had a chance to hear BCG’s George Stalk talk about retailing at a recent IRI conference, and this is what he said:
“The key to success in retailing is very simple: having the products that customers want when they want them. Merchandising is no longer very important in this business.”
George Stalk, Boston Consulting Group
Best Buy would beg to differ… they see innovation as vital to retailing success.
Second, many researchers have found that the “bottom-up” approach to innovation is often counter-productive. They warn that “letting a thousand flowers bloom” ends up giving companies a lot of weeds – diluting focus on the few big ideas that are going to “move the needle” in multi-billion dollar companies.
For example, for the past several years, General Electric has been embarking on a highly publicized approach to improving its innovation performance that is emphatically driven from the top. Jeff Immelt, GE’s CEO, has budgetted a considerable portion of his time to pushing GE’s innovation initiatives.
Next week’s update will look at GE’s top-down initiative. Best Buy, however, seems to be doing a pretty good job working from the bottom up.
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