Win Big For Humanity: A Blueprint For Success

Hubert Joly speaking at a conference in New York City in 2019. (Photo by JP Yim/Getty Images for … [+] Women’s Forum of New York)

Getty Images for Women’s Forum of New York

Herbert Joly is a different breed of CEO. He has that gleam of delight in his eye that gives you a clear sense of the pleasure his direct reports must have felt when they worked for him. He’s a man firmly grounded in doing the right thing. He knows his purpose and his principles, and he has stuck with them to get amazing results.

As the outgoing CEO at Best Buy BBY , he has been talking about how he turned that retailer around in ways that exemplify how companies need to be run now. There are more and more enlightened leaders, like Joly, in the American private sector. Yet Joly has become something of a turnaround guru because of the humanity he brought to his “Renew Blue” turnaround at Best Buy. He says, “If you are driven by power, fame, glory or money, that’s a danger zone.” Imagine how many corporate leaders live in that red zone, still, and how many should be learning from Joly.

When he arrived at Best Buy in 2012, revenues and profits were sinking. As he puts it, most new CEOs in this sort of crisis would have “cut cut cut.” Instead, he focused on four turnaround principles. I offer them here in order of implementation. First, to grow revenue, look to the needs of employees and customers. Next, cut non-salary costs—the selling, general and administrative expenses (I wrote about how Jim Sinegal at Costco was such a genius at identifying and trimming them.) Third, he optimized benefits, meaning he lowered costs by lowering the need for healthcare treatment, promoting employee wellness. And as a last resort, he cut head count. Cutting the workforce is often the first step in lowering costs and raising profit: for him it was to be avoided as long as humanly possible.

Looking to the needs of workers sounds warm and fuzzy. It was anything but. He was analytical. He went out onto the floor of Best Buy in St. Cloud, Minnesota and spent days watching, listening and questioning. He came back with a big discovery. His stores were losing the competitive edge because they were “showrooming” their products but not closing the sales. Customers would come in and use a Best Buy as the brick-and-mortar location for a test drive of any product they were considering—flipping through channels on a flat screen TV, checking the sound on a shelf system, trying out a ThinkPad or a monitor. Then the customer would withdraw, go home and order the product from Amazon AMZN for a lower price. The system was rigged to ensure failure for the Best Buy worker. The fix was easy: make sure Best Buy could match the lowest price on Amazon. Sales jumped.

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This was also a way of looking to the needs of customers. They wanted to see how a product performed before buying it—they needed the Best Buy environment. But they had to then go home and order it online. It wasn’t a one-stop shopping expedition. With the shift in policy, it became simple and easy for customers as well. His team fixed the internal search engine that was misrepresenting what products each store had in stock. They reinstated an employee discount. In other words they made each employee’s life more rewarding, more productive and more profitable for the company.

This is only one example of how granular Joly and his team got. On behalf of customers, they even stepped back, looked at demographics and decided to approach customers not as a seller of individual products, but as a provider of systems to enhance lives. With aging buyers, and with healthcare a top-of-mind concern among that demographic and the general population—the ACA had been rolled out not long before 2012—Best Buy marketed various products to ensure the safety and well-being of seniors. It promoted systems of sensors for every room in the home and the body of the occupant, all of them networked with a rescue service.

“We wanted to help aging seniors live in their home longer by putting sensors in their home throughout the structure and on themselves to detect whether or not something is going wrong to trigger an intervention,” Joly said.

This is complex, intelligent, focused on benefits rather than product features or impulse purchases: it is the essence of how companies need to build a relationship of friendship and trust with customers. It’s at the heart of the spirit of stakeholder capitalism.

They approached their vendors in a similar way, looking for what the vendor needed, not how to get better wholesale pricing or terms favorable to Best Buy initially. They asked how could they help electronics vendors get a better return on the billions they’d spent on R&D. That meant working with vendors on how to display and sell their products on the floor at the retail locations. They let Apple AAPL and Samsung create their own mini-stores within the Best Buy structure, so that the vendor had control of how customers interacted with the products.

His second strategy: reduce selling, general and administrative costs—the costs of doing business aside from compensation. One part of his plan was to save the company $400 million in the costs of broken televisions. Your reaction might be, “Well, of course!” But nobody was paying attention to just how many TV were getting cracked, damaged and destroyed in the chain of events from delivery to purchase to installation in a customer’s home.

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Joly tells the story with pride: “Today the biggest TVs are large and very thin, so they’re fragile. If we sell a lot of TVs, we will break many of them. We looked at the entire value chain to reduce damage, working with the vendors on the design of the TVs and the packaging, considering how we store the TVs, how we move them, the advice we give to customers when they install them, and we saw that as a $400 million opportunity. By now we have taken out $2 billion of costs and probably three-quarters is non-salary expenses.”

Third, he created policies to reduce the cost of benefits, not by reducing them but by encouraging wellness among employees and thus reduce healthcare expenses.

Finally, and sparingly, he cut the workforce. He started at the top and worked his way down the org chart. Reducing employment often is unavoidable, but it’s better than reducing compensation across the board. You train the departing workers on how to make the transition to a new career or job and provide them with the help they need financially to find new work. Then you treat the workforce that remains as they deserve to be treated: as the source of your revenue and your future.

 His results

 “When Joly stepped down as CEO in 2019 to become executive chairman of the Best Buy board, the company he inherited was transformed. Under his leadership, the company boasted five consecutive years of sales growth; a 25.8 percent return on investment, up from 10.5 percent in 2013; achieving operating income targets two years ahead of schedule; and a doubling of U.S. online sales from 2012, to $6.5 billion (17 percent of all Best Buy revenue).”

Best Buy is the place now to buy electronics, and a good place to shop for appliances. Remember Circuit City? Many people don’t. They know Best Buy, though.

After Joly tells the stories of how his company transformed itself, he gracefully transitions into a quiet advocacy for stakeholder capitalism. His turnaround began in 2012. Back then, stakeholder capitalism was a little-known model for private sector governance advocated by a tiny group of visionaries. It had yet to become the movement it is today, he was instinctively creating a case history of how it breeds success in a just way. He and his team took all stakeholders into account and served them all: employees, customers, vendors, and communities where Best Buy did business. He proved that stakeholder capitalism isn’t just a more humane way to do business, it’s also the most successful way.

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