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Is Your Board Completing the Circuit?

Circuit City’s demise reveals board’s importance in strategic planning

This is the third article in a four-part series on strategic governance. Part one and part two are available online.

In the spring of 2012, I attended a presentation by Alan Wurtzel, the long-time chairman and CEO of Circuit City, the first, and for many years, a very successful appliance superstore headquartered in Richmond, Va.

Those of us in the nonprofit community held this Fortune 500 Company in high regard, not only because of its corporate success but because of its commitment to the organizations we represented. Members of the Circuit City Board of Directors and management team served on local boards and provided important guidance and financial support to the social sector.

In 1949, with an initial investment of $13,000, Alan Wurtzel’s father, Sam, founded Ward’s TV and Appliance a year after the South’s first TV channel went on the air in Richmond. Ward’s pioneered the electronic superstore format in the 1970s, and the company was rebranded as Circuit City in 1984, the year it was first listed on the New York Stock Exchange. Because of its superior business performance, Jim Collins included Circuit City in his book, Good to Great. (1)

While the signs were there that Circuit City was facing increased competition from Best Buy and online vendors, it still was somewhat of a shock when it closed its doors in 2009. Alan Wurtzel, who became CEO in 1972, and chairman in 1984, retired in 1994. He was succeeded as CEO by Richard Sharp.

At the meeting I attended, Alan Wurtzel shared his assessment of what contributed to the success of the company over its 60-year history and what contributed to its demise. His insightful presentation prompted me to read his book, Good to Great to Gone: The 60 Year Rise and Fall of Circuit City, because I thought there might be lessons in the Circuit City experience that would be applicable to the nonprofit sector. (2)

In his book, Alan Wurtzel describes how the company began as a one-store operation with a board composed of his father’s friends. But as the potential for long-term growth of the company became clear, Sam Wurtzel realized that the level of future planning needed to realize this potential was more than ideas written “on the back of an envelope.” Over time, the discipline of strategic planning became essential. New members, who brought necessary knowledge and expertise, were added to the board. The company was guided by the board’s best judgments about future scenarios and the strategies most likely to lead to success in those scenarios. And that planning worked.

From Alan Wurtzel’s perspective, Circuit City began to falter when it lost strategic perspective and failed to adequately anticipate future conditions and execute actions necessary to successfully respond to them. The lessons from Circuit City can be instructive to us as we consider how best to position our organizations for success in an environment that requires strategic responses to a continually changing, volatile marketplace.

Here are three of the conclusions Alan Wurtzel reached that I think readily apply to the nonprofit sector:

"Sharp dominated his board to a far greater extent than either Sam or I. … Sharp believe that the only important role of the board was to hire and fire the CEO and approve major corporate moves, and his appointees (to the board) apparently concurred." (3)

Strategic leadership is a team activity. The CEO and board must work together to assure the future of the organization—that the mission will prevail in the context of the times. The role of board members and the chief executive is to bring their best thinking to the table, to come to consensus regarding future conditions, and to develop strategies that respond to those conditions as they arise. Neither party can do this alone. It requires the participation of both the CEO and the members of the board.

"The plan identified the issues well. However, in response it only proposed aspirational goals, without clear strategies to accomplish them or the metrics to know if they were achieved." (4)

Goals and objectives must be clear and quantifiable. In my experience, it is not uncommon to read strategic plans that identify a desired future state—often an idealized one—but the roadmap to achieve that state is not specific. In the absence of that specificity, efforts to achieve the desired end often fall short of expectations. When that occurs, evaluation tends to be driven by the individual perspectives of those around the table, often leading to increased uncertainty and confusion. I recommend:

  • developing goals with defined results that can be measured;
  • define the quantifiable steps or benchmarks that must be accomplished to reach the goal, and chart progress in achieving the benchmarks;
  • when making progress, assess what is contributing to that success; and
  • when performance lags behind expectations, determine the reasons for that and make adjustments to the plan.

"In short, Circuit City was stuck in its own belief system. It clearly understood that the world had changed, but it could not bring itself to act on that reality." (5)

I often wonder if this is not the primary challenge we, in the nonprofit sector, face today. We tend to identify with the intrinsic value of a program or service and its history within our organization, excluding the truth of its value within the larger community. We know services are effective because staff report on their outcomes and clients testify to their worth.

But, simultaneously, the marketplace is changing. Our funders and communities are seeking increased efficiency and effectiveness that can only be achieved through innovation and change in the manner in which services are provided. We tend to respond to the voices within our organizations more readily than we do to those coming from the outside. That hinders our capacity to be strategic. According to Alan Wurtzel, Circuit City had difficulty believing Best Buy would ever be a significant competitor because, after all, Circuit City pioneered the model. How often do we contribute to the creation of our own competition because we fail to hear the voices asking for change?

There are many ways to define strategic competency. One that I would offer is that the CEO and board must listen more to the voices outside the organization than to those on the inside. Our future depends on it.


ENDNOTES:

1. Good to Great by Jim Collins was published by HarperBusiness in 2001.
2. Good to Great to Gone: The 60 Year Rise and Fall of Circuit City by Alan Wurtzel was published by Diversion Publishing in 2012.
3. See page 232 of Good to Great to Gone.
4. See page 254 of Good to Great to Gone.
5. See page 226 of Good to Great to Gone.

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