April 5th, 2007at 04:11am Christian Sarkar
Here’s an interesting article from Knowledge@Wharton:
Apparently, Circuit City announced on March 28 that it cut 3,400 jobs, or 7% of its workforce, effective that day, because the salespeople were paid “well above the market-based salary range for their role.”
The folks at Wharton are not impressed:
“That’s the most cynical thing I’ve heard about in a long time,” says Peter Cappelli, management professor and director of the Center for Human Resources at Wharton. “I like to think I’m cynical, but sometimes it’s hard to keep up.”
Another risk is that a downsizing company can get rid of people whose knowledge and experience are vital. Wharton management professor Daniel A. Levinthal points out that Circuit City’s decision to cut 3,400 veteran sales people “sounds like a massive de-skilling” of the company. Since the people who will be hired to replace the laid-off workers probably will not know the merchandise as well as the workers who were dismissed, customers who want to know how to set up a high-definition TV or why one music player is better than another might not receive the best advice.
If this is the case, Circuit City might have a hard time differentiating itself from its competitors. “These new people will be order takers and have less knowledge [about the merchandise],” says Levinthal. “Circuit City would now be competing against e-commerce because it’s become similar to e-commerce and lost its differentiation as a bricks and mortar store.”
Say goodbye to Circuit City. They are stuck between Wal-Mart and Amazon.com, and this latest move will accelerate their demise.
At the core, this is a failure of imagination. But it may also represent the end of a whole slew of similar companies, in the retail industry (and not necessarily just in high tech).
So what might they have done? Suggestions?
Perhaps they should check to see if their leadership is paid “well above the market-based salary range for their role.”