Management and Leadership: Carphone Warehouse
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1.0 Critical Recent Development
As this is being written Carphone Warehouse is part of
The Carphone Warehouse Group PLC
which consists of the Carphone Warehouse, a retail and distribution business and Europe’s leading independent retailer of mobile phones and services with over 2,400 stores in 9 countries and TalkTalk Group a fixed line telecommunications business that is currently one of the UK’s largest broadband provider with more than 4.1m broadband customers and 1.1m voice-only and narrowband customers. The two operations are being split into separate companies and it is planned that TalkTalk will begin trading as separate companies as of 29 March 2010. This obviously has had a major impact on the management and organizational culture as they preparations for the separation of the two elements of the company prepared to operate as individual entities. Each would by definition have their own managements, board of directors, and will develop a unique and individual corporate culture. It is also likely that there will be considerable shifts in management emphasis in the operation of the retail business.
2.0 The Management and Leadership of Carphone Warehouse
Carphone warehouse is in actuality a subsidiary of the US corporation Best Buy Co Inc as the result of a purchase and sale agreement with The Carphone Warehouse Group PLC consummated on 30 June 2008. Based on the Press release of 19 January 2010 Best Buy continues to operate The Carphone Warehouse in most respects as a separate and stand-alone business, but Best Buy controls it. In a dynamic situation such as the acquisition of CPW by Best Buy there is an obvious problem with the maintenance of management continuity even if there is not a turnover in personnel. The Best Buy relationship is unusual in that the company is still publicly traded in Europe, but is effectively controlled by Best Buy. There is also a close relationship with Best Buy’s European operations and it is difficult to actually separate them in terms of reporting and as entities. Combined with the sale of TalkTalk the internal situation must be very dynamic at this time. To understand the management dynamics of the company it is necessary to understand that it is involved in a very challenging period in its development with the sale of the TalkTalk group and its interest in Best Buy Europe that is basically a big box store operation compared to the historically physically small stores that comprised Carphone Warehouse operations.
The problem with the use of Carphone Warehouse relative to the questions of effective management and leadership development is that the company is going though a dramatic change in its operational format. Historically, the small stores involved close employee client interface. Essentially people came to Carphone Warehouse as much to get advice and help in choosing a handset and a service provider and provider plan as in simply buying a portable telephone handset. The stores were small, relatively easily managed and the relationships within the stores between “The Management” and the commission compensated employees were close and personal. The stores were usually staffed with a general manager and three or four sales associates. The stores typically comprise about 600 square feet and are open 60 to 80 hours per week and 7 days a week.
In contrast the Best Buy Big Box store in the US and Canada have 30,000 plus square feet, approximately 100-150 salaried employees and “grab and go” merchandise. It is clear that the required interface between the customer and the organization employee is far different in the two types of operation.
3.0 Leadership and Management
There is a huge body of research on the topics of leadership and management and the relationship between the two. Krishnan and Park however point out that, “researchers have confined their studies to exploring the impact of observable upper echelon characteristics, namely the demographic traits on corporate strategies and performance. The question is what characteristics are important in developing effective management in Carphone Warehouse. In a retail environment an effective management and leadership development programme is based on duplication. The basic Carphone structure is the small store with a single manager and few subordinates all of whom have the same responsibilities. These store manager reports to area managers who report to district managers in a classic pyramid structure. The question here is not creativity or innovation, but following a successful formula in terms of operation and presentation of product to the customer. It is interesting that the duplication is if anything more important in the “big box” environment of the Best Buy store where there is minimal customer interface. Here the focus is on stocking the shelves, and creating displays according to predetermined plans and collecting and getting paid for the merchandise purchased. The management structure is more complex because of the larger number of individuals involved, but the duplication concept is identical. Tesco is a master of this, and all Tesco supermarkets look virtually identical inside in terms of layout and display. The underlying function of the management is to see employees do what they are told in the manner prescribed. The HRM model is almost martial. There are doubtless at headquarter and senior levels room for creativity, but for most of the employees duplication is the key to their responsibilities. The need for more knowledgeable salespeople is pointed out below in opportunities. This will however require extensive training in complex technology, which will be a challenge to management under the duplication approach to HRM.
4.0 SWOT Analysis
The
strengths
of the Carphone Warehouse operation are mass purchasing power as the largest vendor of portable phones in Europe, a well-recognised brand name with a good image, and pervasive presence in the nature of vast numbers of retail outlets is desirable locations. The other key strength is the increase pervasiveness of portable information access devices. This same element will be used below as a weakness of the business model.
The
weakness
the Carphone Warehouse business model is embodied in the word phone in its name. It grew to its present size and prominence as a vendor of telephones, devices people talked to each other over. The modern “smartphone” like the iPhone is a far more sophisticated and complex device. It can obviously be used as a telephone, but it is effectively a personal communications device. It is rapidly becoming a pocket computer that provides navigation, games, Internet access and more new uses almost daily. As of the time this is being written there are 154,726 applications available for the iPhone, and almost 9,000 new applications are being added per month. This is a far cry from the simple original business model of Carphone Warehouse.
The growing importance of portable computing communications devices is also a huge
opportunity
for the operation. Most people already have at least a conventional mobile phone in Europe. According to “netimperative”, in October of 2008 there were 592 million mobile phone subscribers in Europe of 119% market penetration. As the consumer demands more sophisticated devices they will replace their existing phones with more expensive and complex devices and will require the assistance of knowledgeable sales people to guide them. It will also imply larger stores handling larger numbers of products with more personnel and higher skill and knowledge levels among the salespeople. If Carphone Warehouse can meet the challenge of recruiting and training the requisite human resources it will have a considerable competitive advantage relative to most outlets for mobile phones.
The increasing complexity of the technology is also a
threat
. With the development of net books, iPads, and a host of other devices that are not phones but offer many of the same capabilities the industry environment is and will continue to change dramatically. Carphone Warehouse is responding with a new “midsized’ Store format that will permit it to carry and display a far larger variety of devices the current relatively small stores can accommodate. The question is the existence of more than 2,400 existing small format stores that will not remain competitive in the new environment that is developing. These must be replaced or expanded to remain viable. This can involve a considerable capital outlay and considerable time. These existing stores may become uncompetitive before they can be replaced.
5.0 PEST Analysis
Political
considerations are minor in the Carphone Warehouse operation. Communications regulation could have an impact, but it probably would not have significant business implications for the operation. The
economy
is obviously a consideration in any retail operation and sales and profits will respond to the economic environment. Inventory levels and new store openings will doubtless reflect economic conditions to some extent, but the tech market has been relatively resistant to the current economic softness. The
social
impact of tech developments such as social networking will obviously spur conversion of existing phones to more sophisticated handsets.
Technology
is having an impact on society as great as mass production and the auto did in the 20th century. This can do nothing but help a company dedicated to the sale of products utilizing the rapidly developing technology. The elements of
social and technological
are key to the development and future of the company.
6.0 Developing an effective leadership and management programme
The key consideration in the development of Human Relations Management for a company such as Carphone Warehouse is the training of the salespeople to deal with the increased complexity of the products they are selling to what is, in large part, customers with limited knowledge and understanding of their products. In a retail operation there obviously is a cadre of trained and sophisticated managers and strategic planners at the apex of the pyramid, but for the bulk of the workforce the key is duplication. In the case of Carphone Warehouse the level of complexity of the training to produce this duplication will have to be far higher than that of a McDonalds, but is fundamentally similar. The use of commission compensation provides a strong element of incentive to learn and perform on the part of the staff, and should facilitate the effectiveness of the training program.
At the higher management levels the control of Carphone Warehouse by Best Buy implies that the development of management and leadership must originate with what is now effectively the parent company. The question devolves to the management and leadership of Best Buy.
References
148Apps.Biz. (2010). App Store Metrics. Retrieved from http://148apps.biz/app-store-metrics/
Best Buy Form 10-K filed April 29, 2009 for the period ending February 28, 2009 p.7
Krishnan, H., & Park, D. (1998). The Influence of Top Management Team Leadership on Corporate Refocusing: A Theoretical Framework. Journal of Leadership Studies, 5(2), 50.
Netimperative. (2009, September 17). Mobile phone market penetration across Europe. Retrieved February 12, 2010, from http://www.netimperative.com/news/2009/september/mobile-phone-market-penetration-across-europe/view
The Carphone Warehouse Group PLC. (2009). Annual Report 2009 [Brochure]. London: http://media.corporate-ir.net/media_files/irol/12/123964/AR09/CPW_AR09.pdf
The Carphone Warehouse. (2010, January 29). Press Release Circular and TalkTalk and New CPW Prospectuses. Retrieved February 11, 2010, from http://www.cpwplc.com/phoenix.zhtml?c=123964&p=irol-home
Appendix
The concept of duplication in training in large organizations is not discussed in any academic reference found. It is however a widely accepted principal in military training, franchising and multi-level marketing training. It simply is the concept that the trainee performs the same action in response to a given stimulus exactly the same way each time. The training is repeated until the desired response is produced each time the stimulus is applied. Military close order drill is a classic example. Troops are trained so that on the command “column left” every soldier in the group automatically turns left in the same way at the same point.
In an environment like Carphone Warehouse the training might include greeting each customer with the appropriate “good morning sir” or “good afternoon madam” as opposed to “can I help you?” It would also include extensive training on the qualities and features of each model of handset sold. The concept is that every customer in every store is greeted exactly the same way and provided with exactly the same information in the same way. This has been determined by the sales training department and disseminated throughout the operation. This does not preclude rewarding or recognising outstanding performance. Even the military gives medals for performance above and beyond the call of duty. What it does is standardize the product presentation so it is done in the most effective manner. With 2,400 stores, it is imperative that performance and procedure be standardized.
