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How To Destroy
Team Morale

Written Sunday 04/01/07 by Joe Rossini

This week’s lesson, was inspired by the news that Circuit City announced it would layoff 8% of their workforce or 3400 of their most experienced and highest paid store workers, only to replace them with lower paid employees. For years I have been writing articles and lessons about LEADERSHIP and the many benefits of building and fielding your BEST TEAM possible. Here’s a small sampling with links to those articles:

  • Always Field Your Best Team
  • What Can Teams Teach Us?
  • High Energy Leadership
  • Leading With An Unshakable Character

    This news last week of Circuit City’s “wage management initiative” is perhaps the most negative morale initiative I have ever witnessed in American business. We are all used to company layoffs. This happens every day in large public companies to cut costs. However Circuit City announced that they would target store employees with the highest salaries and obviously the most experienced, and then after a ten week delay allow them to reapply for their job at a much lower rate of pay.

    This brazen strategy will hurt any honest and caring company that has treated their employees fairly. Many companies have fought hard to prevent unions from forming in their business. This strategy will give union leaders the kind of ammunition that they could have only dreamed about – to unionize more businesses. It appears that Circuit City has reduced its business strategies to pure dollars and cents and has removed the incentive and passion for its team members to excel and get ahead in their company.

    Can you imagine how any potential hire will feel going forward, applying for a job at Circuit City, knowing that if they improve their skills and make more money, they may be subject to an immediate firing in the future? The personnel managers at Circuit City will have their hands full, trying to recruit smart, qualified individuals to work for them.

    However what really bothered me the most about this news was the fact that Circuit City’s stock rose on the news. How narrow minder can investors be, to believe that this news is positive for Circuit City? Regardless of the cost savings, can anyone honestly believe that 3400 potential new and inexperienced employees will better serve consumers in their stores? Especially when a large portion of their dollar volume is technology related and consumers are searching for knowledge and answers about digital cameras, flat panel TV’s and laptops? They are not selling donuts in these stores that costs 50 cents. The items they sell are quite expensive and take some degree of expertise to explain the benefits and features to their customers. This knowledge accumulates over time.

    As a consumer, I have not bought anything significant from Circuit City in several years. After a run-in about a new video camera I tried returning several years ago, I stopped shopping there for any item over $50. However I have been in one of their stores recently, to pick up a portable phone which I needed to complete a phone system. They were the only store that carried individual handsets for this particular phone system, which I bought somewhere else. When I entered the store it looked empty. It reminded me of K-Mart, before they filed for bankruptcy. I looked around the store and found their prices were not very competitive, based on my reading of weekly circulars in the Sunday newspaper. And compared to Costco, where I shop on a weekly basis they weren’t even in the same ballpark. I try to buy all my large ticket electronics at Costco because they have the best prices, on high quality merchandise. Their employees, who are well paid for the retail industry also have a pleasant attitude and are very helpful. They appear to be well trained; have great company benefits; and get all major holidays off without any union. And Costco’s return policy is unmatched with a smile!

    I believe that profitability starts with great service. And to perform well in today’s world, you need more experienced, well trained, passionate employees serving your clients to beat the competition. The last thing any company needs are morale problems, caused by insensitive strategies that work counter-productive to fielding your BEST TEAM. Hopefully this strategy will suffer some public backlash, to avoid having other large companies decide to follow down this path. As a consumer, I want the best value for my hard earned dollars, and I can’t see how Circuit City or anyone else will be able to provide that value using this new strategy. Perhaps a private equity firm will take them private and improve the company’s financial position. This may be their answer to becoming relevant again.

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