In an NRF Retail Converge keynote session, Hubert Joly, former chairman and CEO of Best Buy Co. Inc, was interviewed by Sara Eisen, co-anchor of CNBC’s “Closing Bell,” about the Best Buy turnaround and the evolution of what Joly sees as a necessary change in the approach to business management.
Joly, currently a senior lecturer in business administration at Harvard Business School, is the author of “The Heart of Business: Leadership Principles for the Next Era of Capitalism,” which was published by the Harvard Business Review Press in May. He has been recognized as one of the top 100 CEOs in the world by the Harvard Business Review, one of the top 30 CEOs in the world by Barron’s and one of the top 10 CEOs in the U.S. by Glassdoor.
But that, Eisen pointed out as she introduced him, is now.
In the summer of 2012, Joly was named CEO of Best Buy. The company was in trouble: Stock was plummeting, stores were closing and the former founder was trying to take over the company.
Joly, who had previously been CEO of privately held hotel conglomerate Carlson Companies, was denounced in the press as unqualified because he didn’t have a background in retail. The market apparently agreed: The stock fell 12 percent after it was announced that Joly was taking over. What, Eisen asked, was he thinking at that moment?
The joy of a challenge
“I was excited,” Joly said. “Some of my friends thought I was either crazy or suicidal, but I love a challenge — and this was the all-you-can-eat menu of challenges.”
First of all, he said, the world needed a place like Best Buy. Customers needed it: For some purchases, online isn’t enough; people need to see, feel, and touch the product. Vendors needed a place for them to do that, and to showcase the fruit of their billions of dollars of R&D development.
The considerable issues Best Buy was facing were self-inflicted, he said. Prices were too high. The online experience was terrible. Shipping was too slow. Customer service in the store was declining. In Joly’s eyes, this was all good news.
“What’s self-inflicted,” he said, “you can correct, and I thought there was enough cash on hand to initiate a turnaround. That’s why I was excited.”
This view of things was not widely shared in the industry. People were buying cheaper electronics, and they were buying them online from Amazon and using stores as a showroom. Why wouldn’t this happen to Best Buy?
“We took price off the table by giving our blue shirts — the front-line clerks in the store — the authority to match any advertised price,” Joly said. “At the same time, we invested in the online experience and the supply chain, so that we were able to ship just as fast as Amazon. To compete with them, we neutralized their advantages.”
Doing that, of course, costs money, and the traditional approach would have been to make simultaneous deep cuts in expenses. “All the advice I was getting,” he said, “was cut, cut, cut — close stores and fire people.”
Instead, he listened to the people on the front line, who said, don’t do that. Start with growing the top line and focus on creating energy.
Get things moving
“That was a big leadership lesson,” he said. “What’s expected of a leader is not to come up with the right or the best strategic answer, but to create energy. Get going. Celebrate small wins. If there are problems, talk about them. Instead of starting with cuts, start with people — and treat profit as an outcome.”
This approach, Eisen noted, is in direct conflict with a basic tenet of shareholder capitalism, which emphasizes shareholder value and profitability. When you’re turning around a company, she asked, what’s wrong with maximizing profit and prioritizing shareholders?
Best Buy’s share price, noted Joly, went from a low of $11 a share to about $115, in eight or nine years. The big insight — and the key to Joly’s envisioned next era of capitalism — is to treat profit as an outcome, not as the ultimate goal.
“Right at the top of my personal FBI Most Wanted List,” he said, “are Milton Friedman, the prophet of shareholder primacy, and Robert McNamara, the inventor of scientific top-down management. I think we are facing many crises today because of these two gentlemen.”
The place of profit
The heart of business, said Joly, is the idea of pursuing a noble purpose — in Best Buy’s case, it was enriching lives through technology. To do this, you put people at the center, creating an environment where you can unleash human magic.
“My view is not opposed to stockholder capitalism,” he said. “It’s that you maximize value for all stakeholders.”
But you need to be profitable to do that, as Eisen pointed out. Isn’t what he’s describing a sort of luxury designed for a company that’s already making money? No, Joly said. “The human-centric approach was part of the Best Buy turnaround from the beginning. It’s not just a theory for good times.”
A new definition of leadership
As Joly sees it, the traditional approach to business — and the precepts it’s founded on — need to be not merely revised but replaced. “The definition of madness is doing the same thing over and over and hoping for a different outcome,” he said. “The way the economic world has been operating for the past 40 years may be working for some, but it’s not working for enough people. And the planet is in trouble. We have some ticking time bombs. We urgently need to re-found business around purpose and humanity.
“This is hard to do,” he said. “Essentially, everything I learned — in business school, with McKinsey, in my early years as an executive — is either wrong, dated or incomplete. The role of leadership has changed dramatically. It used to be stock price, now it’s the impact on all stakeholders. The CEO as a superhero who knows everything and is driven by power, fame, glory and money — that doesn’t work. People are no longer interested in following those leaders.”